Welcome

to our
Presentation

Case Analysis
UAL 2004: Pulling out of
Bankruptcy

Prepared for.
M. SADIQUL ISLAM
PROFESSOR
DEPARTMENT OF FINANCE
UNIVERSITY OF DHAKA

Group No: 26
Shahadat

Hossain. (M.B.A ID: 17-561)

Muntasir Rahman Khan. (M.B.A ID: 17604)
Abul Hasan Faraz . (M.B. A ID: 17- 606)

Now
Presenting..
Md. Abul Hasan Faraz
ID: 17-606

Problem
Statement

Company Profile

Case Overview

Economic Analysis

PESTLE analysis

Political

Economic

Social

Technological

Legal

Environmental

Porters Five Forces model

SWOT Analysis
Strengt
hs

Weakne
ss

Opportuniti
es

SWOT

Threat
s

Risk Analysis
Sales Variability
Particulars

2002

2003
2004
13724.0
14286
15546.00
0

Revenue
Standerd deviation of
Revenue

933.02

Mean Revenue

14518.67

Revenue Variability (CV)

0.06

Risk Analysis
Variability in EBIT
Particulars
EBIT
Standerd deviation of EBIT
Mean EBIT
Variability in EBIT (CV)

2002

2003

2004

-2,837 -1360.00 -408.00

1223.92

Particulars
EBIT
Standerd
deviation
of EBIT

2002

2003

-2,837 1360.0
0

1223.9
2

-1535.00

Mean EBIT

1535.0
0

-0.80

Variability
in EBIT
(CV)

-0.80

Altman Z-score Model

Altman Z SCORE

2002

2003

2004

-0.2045

-0.5499 -0.3114

Distress Zone

Distress Distress
Zone
Zone

Z score for 2003 was

-0.5499 and for 2003 it
was -3114. As the value
is less than 1.81 in all the
years, we can consider
the firm is in distress
zone. According to the
category firm has high
bankruptcy cost in near
future.

Financial Risk
Particulars

2003

2004

DFL

0.7435

0.48

Times Interest Earned

-2.89

-0.9230

DUPONT ANALYSIS
DUPONT ANALYSIS
Year

2003

2004

ROE= net income/ equity= (net income/net sales) *(net sales/total

asset)*(total asset/equity)
Net Profit AT/Revenues

-0.0991

-0.0261

Revenues/Total Assets

0.62

0.72

Total Assets/Stockhldrs. Equity

-3.72

-3.26

ROE

47.46%

21.32%

Problem Statement

Alternatives
Present Case

Continuation of
Pension Fund

Termination of
Pension Fund

Liquidation

Present Case Valuation:

FCFF Method
WACC Calculation

Assumptions

Tax rate
Terminal growth rate

0.3
0.015

Probability Of Distress

0.5

Cost Of Distress

0.2

Tax rate

0.3

Terminal growth rate

0.015

Probability Of Distress

0.5

Cost Of Distress

0.2

Risk-free rate

3%

Market Return
Beta
Cost of equity
Cost of debt
Tax Rate
After tax cost of debt
Value of equity
Value of debt
Weight of equity
Weight of debt
Additional risk premium

8%
1.6
11.00%
8.00%
30%
5.60%
307
23,252
0.013
0.9870
6.0%

WACC

11.67%

Base Case Valuation: FCFF

Method
Total pvcf

28221.13962

ADD: cash

2,215

Value of Firm

30,436

Cost of financial distress

3043.613962

Distress adjusted firm value

27,393

Less: Long Term Debt

23252

Value of equity

4,141

No of shares

1000

Value per share

4.140525655

Simulation & Sensitivity

Present Case

CV 0.827>0.50, so, VPS is more Sensitive

VPS Most Sensitive to WACC

Liquidation Valuation

Amount

Weighted
Amount

Distribution of liquidation value

Present

12,727

6,364

Liquidation value

Best

14,956

2,991

Total Value Of Debt

Worst

11,927

3,578

Average recovery amount

12,933

Transaction cost (15%)

1,940

Legal fees (12%)

1,552

Liquidation value

9,441

Liquidation value
after paying debt

9,441
23,252

(13,811)

Now
Presenting..
Shahadat Hossain
ID: 17-561

Cash Flow Under Alternatives

Continuation of pension fund
Cash needed

Cash needed

Payment and termination of capital

lease

1412

Payment of account payable

238.4

Contribution to pension fund

4367

liquidity financing
Total

Termination of pension plan

500
6517.4

Cash financing

Payment and terminattion of capital

lease
payment of long term debt
Payment of account payable
liquidity financing
Total

1412
1481.2
238.4
500
3631.6

Cash in hand

2215

Cash financing

Exit Financing

2000

Exit Financing

2000

Proceeds from sale of

2626.68

Proceeds from sale of

Total cash financing

6841.68

Total cash financing

Cash available

324.28

Cash available

2626.68
4,627
995

Valuation: Continuation of pension

fund
Assumptions
WACC

0.1066

Tax rate

0.3

Terminal growth rate

0.035

Probability Of Distress

0.2

Cost Of Distress

0.1

Risk-free rate

3%

Market Return

8%

Beta

1.3

Cost of equity

9.50%

Cost of debt

7.00%

Tax Rate

30%

After tax cost of debt

4.90%

Value of equity

4,985

Value of debt

3,333

Weight of equity

0.60

Weight of debt

0.40

Additional risk premium

3.0%

WACC

10.66%

Risk-free rate

3%

Market Return

8%

Valuation: Continuation of
pension fund
Total PVCF

35286.4

Add: cash

14,008

Firm Value

49,294

Less:cost of financial distress

985.882

Distress adjusted firm value

48,308

Less: Long Term Debt

3332.7

Value of equity

44,975

no of shares out standing

value per share

10,000
4.49755

Simulation & Sensitivity:

Continuation of pension fund

CV 0.1218<0.50, so, VPS is

less Sensitive

VPS Most Sensitive to WACC

Now Presenting..
Muntasir Rahman
Khan
ID: 17-604

Valuation: Termination of
pension plan
Assumptions
WACC
Tax rate
Terminal growth rate
Probability Of Distress
Cost Of Distress

0.1146
0.3
0.035
0.2
0.25

Risk-free rate

3%

Market Return

8%

Beta

1.5

Cost of equity
Cost of debt
Tax Rate

10.50%
8.00%
30%

After tax cost of debt

5.60%

Value of equity

4,985

Value of debt

8,165

Weight of equity

0.379

Weight of debt
Additional risk premium
WACC

0.6209
4.0%
11.46%

Risk-free rate

3%

Market Return

8%

Valuation: Termination of
pension plan
Total pvcf

32081.63

Add: cash

10,248

Firm Value

42,330

Less:cost of financial distress

2116.503

Distress adjusted firm value

40,214

Less: Long Term Debt

8165.42

Value of equity

32,048

No. of share out standing

Value per share

10,000

3.204814

Simulation & Sensitivity

Termination of pension plan

CV 0.1541<0.50, so, VPS is less Sensitive

VPS Most Sensitive to WACC

Recommendation

Justification

Any Query ????