Free Cash Flow and Total Value - 1218 Words

1 – Methodological Approach In this case, American CC – the intended acquirer of AirThread Connections- will use leveraged buyout (LBO) model, which means the company will finance the acquisition through bank loan or some other borrowing methods. Hence, the debt-to-equity ratio will change in time. Since we will need to estimate the discount rate any time the capital structure changes, neither WACC nor APV would be reliable alone. Therefore, Ms. Zhang should use the combination of WACC and APV methods. As stated above, ACC will use the Leverage buy out (LBO) approach, which means that the debt to equity ratio of AirThread will not be the same from 2008 to 2012, so APV approach would be more suitable to valuate the cash flows between†¦show more content†¦When we add the results to present value of free cash flow between 2008 to 2012, we will reach to the value of AirThread before considering synergies. To calculate the present value of tax shields we should determine the discount rate. Since we are of the opinion that the future tax shields are positively correlated with AirThread’s operating conditions, we assume discount rate for tax shield should be the unlevered asset return which is 7.8%. The calculation of the PV of tax shield is as follows : 2008 2009 2010 2011 2012 Interest expense (as usual) 80 80 80 80 80 Interest expense on acquisition loan 199 183 166 148 128 Total Interest expense 279 263 246 228 208 Tax shield 111.77 105.23 98.32 91.02 83.31 PV of tax shield 103.68 90.55 78.48 67.40 57.23 Sum of PV tax shield 397.35 For calculation of the present value of Equity in Affiliates, we use the market multiple approach given as 19.1x. Therefore, AirThread’s stake in affiliates is worth around 19.1 x $90 = 1,719 million. Consequently, if we calculate the total value of AirThread before synergies; Operating Assets $Million Baseline business value 2008-2012 873.99 Terminal value 5,198.46 PV of tax shield 397.348 Non-operating Assets PV of equity in affiliate earnings 1719 TotalShow MoreRelatedWorking Capital Simulation : Managing Growth Assignment1454 Words   |  6 Pageswithin the company. Atlantic Wellness is a company that deals with the health food industry. By acquiring Atlantic Wellness, Sunflower Nutraceuticals can create changes such as sale increase, changes in the area of EBIT, net income, free cash flow as well as total value. Sale Increase The expansion of the business can be done by acquiring new customers. With this expansion it is expected for the company to generate higher revenues. Part of the expectations is an increase of $4,000,000 each year forRead MoreAirthread Connections1019 Words   |  5 PagesCapital) - When we are supposed to value AirThread Connections with the WACC valuation method we will have to use the following steps: * Determine the unlevered free cash flows of the investment. * Compute the weighted average cost of capital with the following formula: * Compute the value with leverage, VL, by discounting the free cash flows of the investment using the WACC. APV (Adjusted Present Value) – This method involves determining the value of a levered investment using theRead MoreIntrinsic Value Of The Cvs Health Corporation1058 Words   |  5 Pagesanalysis I will attempt to calculate the intrinsic value of the CVS Health Corporation by conducting a two-stage DCF company-level valuation analysis, I will compare my results to the current market capitalization of the company as shown on the Yahoo Finance web page. Finally, I will perform a sensitivity analysis using variables such as free cash flow, terminal growth rate and WACC. Calculate intrinsic Value of your Company: Discount cash flow method This is an important valuation method usedRead MoreCalculating Terminal Value1047 Words   |  5 PagesTerminal Value Having estimated the free cash flow produced over the forecast period, we need to come up with a reasonable idea of the value of the company s cash flows after that period - when the company has settled into middle-age and maturity. Remember, if we didn t include the value of long-term future cash flows, we would have to assume that the company stopped operating at the end of the five-year projection period. The trouble is that it gets more difficult to forecast cash flows over timeRead MoreSampa Video Case704 Words   |  3 PagesSampa Video Solution Discussion Sampa Video Case This case is useful for illustrating how we do NPV analysis when cash flows are risky, illustrating the idea of a terminal value, and also for thinking about what kinds of advantages make for positive NPV projects. The case discusses Sampa Video, the second largest chain of video rental stores in the greater Boston area, and their consideration of an expansion into an online market. What we have to do is evaluate the decision. Sampa Video –Read MoreEssay on Calaveras Vineyards739 Words   |  3 PagesTo: Dr. Lynna Martinez Subject: Calaveras Vineyards Valuation As per your request, my associates and I have calculated a valuation for Calaveras Vineyards using the present value of cash flows. We used the valuation of future cash flows method in order to value to value the company. We have come to the conclusion, based on a number of future projections, that the best valuation of the vineyards is $4,356,000 in assets and $1,104,000 in equity. The process at determining this valuation was asRead MoreFianance756 Words   |  4 PagesCalculated * Net Operating Working Capital * Total Working Capital * Net Operating Profit after Taxes * Free Cash Flows * Market Value Added Net Operating Working Capital = Current Assets – Current Liabilities Rupee (000) | 2011 | 2010 | 2009 | Current Assets | 3262718 | 1779477 | 2143328 | Current Liabilities | (3731902) | (2128504) | (2343211) | Net Operating Working Capital | 6994620 | 3907981 | 4486539 | Total Working Capital = Net Operating Working Capital + OperatingRead MoreBenefits Of Selling And Administration Expenses1092 Words   |  5 Pagesworking capital on projected cash flow. Assume noncontrolling interest will maintain last year’s rate. ïÆ'Ëœ Discounted cash flow The discounted cash flow model focus on generating the unlevered free cash flow in next projected years and discount them using weighted average cost of capital. First, the free cash flow to the firm is the after-tax cash flow generated by the firm’s operations, net of investments in capital, and net working capital. It includes cash flows available to both debt and equityRead MoreJet Blue Case Ipo1175 Words   |  5 Pagesin control of management and is expensive. There are Free Cash Flow techniques and relative valuation techniques that we can use to value Jetblue’s share, however we are going to use the Free Cash Flow technique for this case as this is an IPO and the company had no history whatsoever that we can rely on except by using its similar competitor statistics and assumptions to value Jetblue. In conclusion, we have calculated that using Free Cash Flow technique, the share price is $57 and therefore theRead MoreDcf Analysis598 Words   |  3 PagesDCF analysis The value of a company today, based on how much money it’s going to make in the future Dividend discount model (DDM) Free cash flow to equity – determine the fair value of companies One must consider * Future sales growth, profit margins * Discount rate – depends on a risk-free interest rate 1. Forecast period amp; forecasting revenue growth * How far we should project cash flows * Excessive return period * One can guess based on the company’s competitive