Advance coorperate finance - Essay Example

Crown’s (Australia) FCFF grows continuously for the five years after which it takes a slight downward trend. This means at the fifth year of its operation it reaches maximum profitability level of the company beyond which level the expenses of the company increases resulting in decease in the FCFF of the company. The company projection has been made on the basis of both DCF and DDM approach where the former is 81.24 and the later is 50.27 which means that the market has been pessimistic for the duration of which the discounted cash flow and the dividend discount model has been computed.

Contrarily the intrinsic value of the company being $4.46 as against the market price of the company at $9.06 indicates that the company shares are overvalued. Thus it will turn out to be beneficial for the sellers of the shares, while investors thinking of buying the shares of Crown should wait till the market price of the company dips a little. The P/E ratio of Crown is 20.46 while that of CNTY is 20.85; through this we can say that CNTY is in a better position than Crown. However, the higher P/E ratio is also an indication of the risk of the company being high as the market value of the company has fallen in comparison to the earning per share of the company.

This effect can be brought about through the buyback of shares. (Cassia, Plati & Vismara 1-10). Mergers and Acquisitions Acquisition is a process which a firm enters into to gain control of the target company that is being acquired. It is one of the growth strategies of the company through which the company plans to expand its business. Crown Limited has acquired the Aspinall’s Club which is a high-end casino in London. This has enabled Crown to successfully operate in London while catering to the VIP business class leveraging the marketing and the sales capabilities of Crown in the international market.

But as per the expectations of Crowns acquisition the returns for the company has not turned out to be a remarkable one. The other acquisition of the company is the Holiday Inn hotel which was entered into by the company on 11th May, 2011 to possess the assets in Perth that amounted to approximately $79 million. For the settlement of the equity derivatives the company acquired both Echo Entertainment Group and Tabcorp Holdings Limited. Most of the acquisition of the company did not show incredible results resulting in the increase in the capital expenditure of the company (Crown Limited, 2011).

Segment Report The segmentation of the Crown Australia was done on the basis of geographically from Melbourne and Burswood. The major portion of the company’s sales is generated from Melbourne which is 71% while that of Burswood is 29%. The acquisition of the casino led to the VIP program. But due to heavy impact of stiff competition both Crown Burswood and Melbourne were affected by the reduction in the VIP program. Across the two properties of Crown in Australia, the main floor gaming revenue shot to 56% while its PM was 39% over the year in 2011.

However, the non-gaming segmentation policy of Crown adopted by the company boosted its revenue in the non-gaming section by 22% while the PM was 16% benefitting the full year operation of the company. On the other hand, the strategy adopted by the company to source new customers from China helped them earn better VIP program revenue of $31 million from Crown Melbourne. Contrarily the major operational revenue of the company came from main floor gaming segment where Crown Melbourne gave $930,657 million while Crown Burswood added $413,770 million.

Hedging Policy The company hedges the derivative instruments but does not use the process for trading purposes. The process of hedging is carried on fair value and the cash