Difference between the two present value estimates

Reference no: EM13988378

Please complete the following questions.

Explain the implications of case Exhibit 1 (Paige Simon's first task). Based on that exhibit, is terminal value a material component of firm values?
Drawing on case Exhibit 4 and your own general knowledge, where would the various estimators be appropriate? Where would they be inappropriate? (Simon's second task)
Regarding the cash flow forecasts in case Exhibit 5, at what point in the future would you set the forecast horizon for the three investments? Why? More generally, what should determine when you stop forecasting annual cash flows and estimate a terminal value?
Estimate other terminal values based on alternate estimation approaches. From these various estimates, please triangulate toward a single composite estimate of terminal value for each of Sierra Capital and Arcadian's forecasts (you can use a data table to summarize your assessment).

What is the resulting present value (PV) of cash flows under Sierra Capital and Arcadian's outlook?

How significant was TV in creating the difference between the two present value estimates?

As a general matter in valuation work, how much attention should terminal value garner? What short list of questions about TV could you keep on hand in case a client asked you to opine on a valuation of that company?

Exhibit 6
ARCADIAN MICROARRAY TECHNOLOGIES, INC.
Sensitivity Analysis, Present Value Varying by Terminal Value Growth Assumptions

Arcadian's View

Annual growth rate to infinity	2%	3%	4%	5%	6%	7%
Weighted average cost of capital	20%	20%	20%	20%	20%	20%
Annual capex (net of depr'n.) 2015	$0	($5)	($12)	($15)	($20)	($28)
Annual addition to NWC 2015	-	(3)	(5)	(7)	(8)	(9)
Adjusted free cash flow 2015	202	194	185	180	174	165
Terminal value 2014	1,142	1,173	1,200	1,257	1,314	1,355

PV of terminal value 2014	185	189	194	203	212	219
PV free cash flows 2005-2014	($151)	($151)	($151)	($151)	($151)	($151)
Total Present Value	$33	$38	$43	$52	$61	$68


Sierra Capital's View

Annual growth rate to infinity	2%	3%	4%	5%	6%	7%
Weighted average cost of capital	20%	20%	20%	20%	20%	20%
Annual capex (net of depr'n.) 2016	$0	($5)	($12)	($15)	($20)	($28)
Annual addition to NWC 2016	-	(3)	(5)	(7)	(8)	(9)
Adjusted free cash flow 2016	185	177	168	163	157	148
Terminal value 2015	1,049	1,073	1,093	1,142	1,189	1,219

PV of terminal value 2015	141	144	147	154	160	164
PV free cash flows 2005-2015	($118)	($118)	($118)	($118)	($118)	($118)
Total Present Value	$23	$26	$29	$35	$42	$46

Reference no: EM13988378

Questions Cloud

The neighborhood food collective produces : The neighborhood food collective produces jams and sells them to benefit local food banks. The collective produces a strawberry-rhubarb jam, and a strawberry-orange jam. The maximum number of jars of jam they can produce in their current space is 302..

Essay that details the historical development of law : Application: Where Does U.S. Law Come From? Your task in this application is to write an essay that details the historical development of law in the United States

Human interactions corporation produces two products : Human Interactions Corporation produces two products using two assembly lines. Line A has 140 hours available this month while Line B has 80 hours available. On Line A, Product 1 requires 10 hours of production time and Product 2 requires 8 hours of ..

Marketed as being high in vitamins and minerals : Way of Nature Co. produces granolas marketed as being high in vitamins and minerals. An ounce of oats provides 8 milligrams of vitamin A. An ounce of quinoa provides 4 milligrams of vitamin A. An ounce of oats costs $0.05 and an ounce of quinoa costs..

Difference between the two present value estimates : How significant was TV in creating the difference between the two present value estimates? As a general matter in valuation work, how much attention should terminal value garner? What short list of questions about TV could you keep on hand in case ..

Determine the current : Determine the resistance of a 75-W lightbulb connected to its proper source voltage of 110 V. Express your answer to two significant figures and include the appropriate units.

Facing a financial crisis : Robert Massey and his family are facing a financial crisis. Robert’s position with a major chemical company has been outsourced to an overseas conglomerate and his wife, Megan, has quit her job because the Masseys are expecting their third child. The..

Developing your firms marketing communications plan : Imagine that you are an owner of a small business. You are developing your firm's marketing communications plan. Discuss your marketing plan and explain the importance of demographics and psychographics to your plan. Could these concepts impact your ..

Determine the speed of light from a helium-neon laster : Determine the speed of light from a helium-neon laster as it travels through carbon tetrachloride. The wavelength of light from the laser it 632.8 nm in air and the index of refraction of carbon tetrachloride is 1.461.

User Account

All Pages