Cox Case

3833 Words Mar 10th, 2014 16 Pages
Table of Contents
Executive Summary……………………………………………………………………………………...2
Question 1………………………..………………………………………………………………………….3
Question 2……………………………………………………………….…………………………………..4
Question 4………………………………………………………………………………………………......6
Question 5…………………………………………………………………………….……………………..7
Appendix………………………………………………………………………………………………………8
Bibliography…………………………………………………………………………………………………10

Executive summary

Laura Martin is a reputable equity analyst, who currently deals with the sell-side of equity analysis primarily in the cable industry. Equity analysts are divided into two categories, the buy-side and the sell-side and their main task is to compile financial information of companies along with market information and consult their
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The DCF uses the present value of the estimated free cash flows of a company which are then divided by the number of shares outstanding to find the stock price of the company. This model requires many assumptions to be made. Martin used a Terminal multiple of 13 times and a weighted average cost of capital of 9.3% and found a stock price of $54.29.
Real options valuation analysis was of special importance to her as she believed that the contingent nature of the investment decision and the uncertainty surrounding the ultimate revenue streams made the ‘stealth tier’ ideal for valuation through real options valuation analysis. Martin considered that the best approach was to value the option of each channel of the ‘stealth tier’ per home passed. As a proxy for the present value of each channel Martin used the average current market value per home passed for a typical cable company. For strike price Martin considered the opportunity cost of not lighting up the fiber immediately. Finally, the above inputs along with other assumptions were employed by Martin to estimate an option value of $22.45.

Question 1
Equity Analysts monitor trends in specific industries, initiate and supervise research on companies in those sectors, recommend what stocks investors should buy or sell and provide reliable research that backs up those recommendations. A typical Equity Analyst would manage a portfolio of equities and provide stock recommendations for the industry covered. The job
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