Case Study: Arcadian Microarray Technologies, Inc.

1305 Words Mar 2nd, 2015 6 Pages
FINANCIAL MANAGEMENT

CASE STUDY: ARCADIAN MICROARRAY TECHNOLOGIES, INC.

EXECUTIVE SUMMARY

As an investment manager from Sierra Capital Partners, Rodney Chu is interested in purchasing a 60% equity interest of Arcadian Microarray Technologies, Inc., a biotechnology firm. The bid is currently at $40 million. The Arcadian’s managers have optimistic projections for their firms’ performance over the next 11 years.
However, based on Sierra’s calculations, come up a much more conservative view. With the request of Mr. Chu, a fair bid price could be calculated along with any appropriate counterproposals. Appropriate steady state growth rates and terminal values would be included and explained.

I. Objective
The main
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For instance, Book values might be realistic in mark-to-market accounting situations, where the firm has just started up, or where the firm consists substantially of working capital. On the other hand, Liquidation estimates would be more realistic in cases where the firm will indeed liquidate. Replacement values might indicate market values where the firm experiences high inflation. In any comparison to this, DCF and multiples give very direct estimates of market values. DCF will dominate where the firm has no earnings to capitalize or when assets consist mostly of intangibles that are not currently reflected in earnings.

2.3. Assessment on forecast horizons for the three projects in Exhibit 5

Terminal Value

Forecast Horizon
Cash Flows beyond the Forecast Horizon
All future cash flows, not only the ones that you can forecast, determine value

Terminal Value

Forecast Horizon
Cash Flows beyond the Forecast Horizon
All future cash flows, not only the ones that you can forecast, determine value

On the figure above, we can see that the terminal value is used as the horizon in forecasting the three projects. We also have to consider the condition of when we should set the terminal value. The key to set the horizon is when the stable growth of forecasted cash flows begin. When the stable growth begins, stop forecasting the

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