Case ID: 4263
Author: David Benjamin
Subject: Finance
Price $ 75

This case can be used as a
capstone valuation practice for year one MBA undergraduates/graduates in a
simple account course. A senior accomplice in the business extension group at
American Cable Communications, one of the greatest link associations in the
U.S., must set up a preliminary valuation for assuming control over Air Thread
Connections, a nearby cell provider. The takeover would permit American Cable a
road for drawing in with remote aptitude and innovation just as the remote
band. It would likewise make the organization fit for offering engaging
administration bundles, including remote, which needs the organization's
present portfolio. Undergraduates/graduates will be made acquainted with the
principal learning identified with valuation, which will incorporate DCF
(limited income) utilizing APV (balanced present worth) and WACC (weighted normal
expense of capital). they will be required to choose the ideal alternative for
conditions that include a capital structure that might change or might be
unfaltering. Undergraduates/graduates will be required to consider the impact
of consistent obligation versus the D/V (obligation to-esteem proportion) in
surveying betas and the expenses of capital. Likewise, undergraduates/graduates
assess the effect of non-working resources on valuation figurings. Further,
course facilitators can add the assignment for undergraduates/graduates to
consider the individual duty inadequacy of obligation and the bit of leeway
that American Cable would like to achieve after the takeover. Complete
examination and assessment to the valuation of Airthread associations case analysis
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Future Cash Flows Projections,

Calculation of Working Capital,

Discount Rate & Growth Rate Calculations,

Calculation ROA through CAPM,

Calculating Beta from Comparable Companies' Information,

Calculating Long-term Growth Rate,

Valuing the Company using APV Approach,

Adjusting Company Value for Synergies and Liquidity

1. Please describe the methodological approach that should be used to value AirThread (should Ms. Zhang use WACC, APV, CCF, or some combination thereof). How should the cash flows be valued for 2008 – 2012? How should the terminal or going concern value be estimated? How should the nonoperating investments in equity affil-iates be accounted for in the valuation? [Hint: it may be possible to use more than one technique simultaneously.

2. What discount rate should Ms. Zhang use for the un-levered FCF for 2008 through 2012? Is this the same discount rate that should be used to value the terminal value? Why or why not?

3. Develop an estimate of the long-term growth rate that should be used to estimate AirThread’s terminal value. Using your estimate of long-term growth, what is the present value of AirThread’s going concern value?

4. What is the total value of AirThread before considering any synergies? What is the value of AirThread, assuming Ms. Zhang’s estimates for synergies are accurate? Should the value of the tax shields reflect that personal tax disadvantage of interest income to ordinary debt holders? If so, what is the personal income tax disadvantage of debt?