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Provide written answers, with supporting calculations, tables, and other figures as necessary, to the questions below:
(1) Why is Wathen acquiring Pinkerton’s? How, specifically, will he create value?
(2) What is the proper cost of capital for evaluating this acquisition?
(3) Develop and value the free cash flows from Pinkerton’s and also from the CPP margin improvements.
Which financing choice (capital structure) should Wathen choose? Make sure you examine the debt service ability, value the equity stake given up, and discuss any other capital structure issues in making your decision. How should Wathen respond to Morgan Stanley?