Reference no: EM132079999
Case 46 of the textbook addresses what the initial public offering of Rosetta Stone in early 2009.
You are going to determine whether management is reasonable in its assumption that the IPO price per share should be in the $15-$17 per share range.
To determine reasonableness, you will need to do your own estimates of the IPO price using market multiples and discounted cash flow analysis.
Note that in the final exam folder in Blackboard, there is a spreadsheet template file for this case that you may use.
1. The case write-up suggests using K12 as a comparable company. Based separately on K12's price/EPS ratio and Enterprise Value/EBITDA ratio applied to Rosetta Stone's financials, determine range of price per share.
Note that when you derive enterprise value for Rosetta, you will need to subtract Rosetta Stone's debt to determine the market value of equity before deriving price per share.
2. Prepare a discounted cash flow analysis using the Exhibit 7 assumption financial assumptions. You will need to do year-by-year projections of free cash flow through 2018 and prepare a terminal value estimate free cash flow for 2018 based on a reasonable constant growth rate for future.
Note that the case gives you tax rate information. You may use 10% as your WACC estimate.
Note that the present value of free cash flows will provide you enterprise value and that you will need to deduct Rosetta Stone's debt (provided in the case).
It is important to note that Free Cash flow is equal to: net operating profits after tax + depreciation - capital expenditures - annual change in net working capital.
3. Discuss weaknesses that may appear in your analysis.
Compute the current price of the bond
: Katie Pairy Fruits Inc. has a $1,000, 20-year bond outstanding with a nominal yield of 15 percent (coupon equals 15% × $1,000 = $150 per year).
|
Find adjusted balance in accumulated depreciation account
: Tidy Limited purchased a new van on January 1, 2016. The van cost $30,000. It has an estimated life of eight years and the estimated residual value is $6,000.
|
What are the sources of income
: Herda Company started operations in 2012. What are the sources of income that may be relied upon to remove the need for a valuation allowance
|
What should corporation b ceo do
: In light of shareholders' desire to make as much profit as possible, what should Corporation B's CEO do?
|
Prepare a discounted cash flow analysis
: Determine whether management is reasonable in its assumption that the IPO price per share should be in the $15-$17 per share range.
|
Welcome to the world of century HRM
: Angie was standing at her (former) desk, picking up her personal items and wondering how she had gotten into this mess.
|
Novel based off of philosopher schopenhauer
: Dr. Glas is portrayed as a gloomy character in Soderberg's version of the novel based off of Philosopher Schopenhauer.
|
How much can tiffany deduct for home office expense
: Tiffany operates a cosmetic sale business from her home. She uses 500 of 2,500 square feet of the home as an office for the entire year.
|
What are the cash flows related to the acquisition
: Machine 1 has an initial cost of $100,000, costs $20,000 to set up and is expected to be sold for $20,000 after 10 years.
|