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Zantax Case Summary

612 Words3 Pages

(1) Firstly, increase the cash flow position of Zantax. The value of equity is the function of the sum of free cash flow of equity (FCFE) and cost of equity. When cash flow increases, the numerator for the value of equity increases and the resulting value of equity will be higher. Keeping the value of debt and cost of equity constant, we would be able to increase the value of the firm or the value of equity, depending on which formula we are using to compute them. A key way to increase cash flows is to reduce the DSO. By turning sales into cash more quickly, Zantax can put the excess cash-on-hand to use, such as to reinvest and generate more sales – Zantax will thus be able to improve its free cash flows (Investopedia, LLC, 2015). Concretely, doing so would be to review Zantax’s receivables management process and identify areas for improvement. Without a detailed understanding of the current process, reducing the DSO broadly entails tightening Zantax’s credit policy, timely invoicing of customers, and reminding them promptly of payment due dates. Being firm in enforcing credit collections will help Zantax collect payments on time and send a message to customers to cooperate similarly (Wood, 2012). …show more content…

Since the value of equity is inversely affected by the present value of future cash flows and thus WACC, reducing the WACC (equivalent to cost of capital in an efficient market in the long run) is another way to increase the value of equity. This can be done in 3 ways: a) Reducing the cost of debt; b) Reducing the cost of equity; and c) Through capital

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