Airthread Connections

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Valuation of AirThread Connections 1. Methodological Approach to the Valuation a) WACC (Weighted Average Cost of Capital) - 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 the following steps: * Determine the investment’s value without leverage, VU, by discounting its free cash flows at the…show more content…
To do this we had to calculate the reinvestment rate w/o synergies and the return on capital (RoC). 1. Reinvestment Rate (2012): * (CAPEX + Working Capital – Depreciations & Amortizations)/NOPAT * 2. Return on Capital: * Income before minority interest/(Equity + Long term debt – Minority interest) * 3. Long-term growth rate: * * Using this growth rate we calculated a terminal value of $6782.88 and a PV(terminal value) of $4698.39: * * b) The present value of AirThread’s going concern value is $7956.85. We calculated this number using the following setup: PV of Terminal Value + PV of Unlevered Free Cash Flow + PV of Interest Tax Shield + Value of Non-Operating Assets = Going Concern Value 4. Valuation of AirThread a) We calculated the total value of AirThread (before considering any synergies) by subtracting the value of the non-operating assets from the going concern value. This gave us a total value of $6237.85. b) When assuming that Ms. Zhang’s estimates for synergies are accurate we can compute a new unlevered free cash flow looking like this: Unlevered Net Income | 337,1 | 447,0 | 582,2 | 760,6 | 902,8 | Plus: Depreciation & Amortization | 705,2 | 804,0 | 867,4 | 922,4 | 952,7 | Less: Capital Expenditure | 631,3 | 719,7 | 867,4 | 970,1 | 1 055,0 | Less: Increase in
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