Finance II (431) Valuation of Air Thread Connections
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
Finance II (431)
Valuation of Air Thread Connections - Case Questions
The purpose of this case is to apply your knowledge of valuation and M&A to the following question: How much should American Cable bid for Air Thread? Based on the information in the case, your notes from class, and your experience, answer the following questions:
1) What is the unlevered value of Air Thread as a standalone going concern (i.e., if no acquisition takes place)?
a. What is the correct cost of capital? You may assume that all comparables in Exhibit 7 have a debt beta of 0.25.
b. How should the cash flows be valued for 2008 through 2012? Use the working capital worksheet given below (a clarification of Exhibit 1 in the case).
c. How should the terminal value be estimated? Assume a long-term growth rate of 3%. How sensitive is the result to this assumption? Is this assumption sensible? Why or why not?
d. How should cash and non-operating investments in equity affiliates be accounted for in the valuation?
2) How much is Air Thread worth as a standalone going concern? Assume that Air Thread maintains a capital structure equal to the industry average (using the full set of comparable wireless companies provided in Exhibit 7).
3) How much is Air Thread worth to American Cable, assuming that the acquisition is funded as described in the case and in Exhibit 6? Provide valuations under two scenarios, assuming that the potential synergies do and do not materialize.
a. Should you use WACC, APV, or some combination of the two?
b. What discount rate should you use for the unlevered FCF for 2008 through 2012? Is this the same discount rate that should be used to estimate the terminal value? Why or why not?
4) Based on the calculations above, how much should American Cable bid for Air Thread? Are there any factors that you would consider that are not included in the above calculations?
You do not need to answer each question explicitly. The questions are designed to guide your thinking. You should, however, discuss all the relevant issues.
AirThread – Working Capital Worksheet
|
Working Capital Terms
Days Receivable = Average number of days that customer invoices are outstanding before they are collected = Accounts Receivable / Total Revenue * 360 Days Sales of Equipment = Average number of days that equipment remains in inventory before being sold = Equipment Inventory / Equipment Revenue * 360 Prepaid Expenses Percentage = The fraction of Total Expenses that are prepaid (i.e., expenses paid but not yet used) = Prepaid Expenses / Total Operating Expenses Days Payable = Average number of days that invoices are outstanding before they are paid = Accounts Payable / Total Operating Expenses * 360 Days Deferred Service Revenue = Average number of days of unearned service revenue (i.e., payments received for services not yet rendered) = Deferred Service Revenue / Service Revenue * 360 Days Accrued Liabilities = Average number of days of unpaid expenses (i.e., expenses incurred but not yet paid; e.g., pension liability) = Accrued Liabilities / Total Operating Expenses * 360 Working Capital Assumptions 2008 2009 2010 2011 2012
|
2023-11-05