Air Thread Connections Harvard Case Solution & Analysis

Using the Estimation of Growth Rate to Evaluate Present value

Evaluate the effectiveness of business operations of the company's assumptions to reflect the expected cash flows of the project for over 5 years. Now, after 5 years, and the effects of future flows unpredictable cash and in addition the unrealistic estimates of cash flows for the uncertain future has made a difficulty for calculations that may lead to a misleading ends.

airthread case solution

airthread case solution

In order to calculate the final value of their studies with the help of infinite value. Whereas the further discussion and analysis is elaborated in the next topic.

Terminal Value through WACC

WACC means the weighted average cost of capital, which reflects the total cost to the financial institution with regard to the organization. It a value that represents the return required by debt or equity holders against their investment in company. In this case, the cost of property rights that can be evaluated using the average returns provided by market share, similar to IFC's participation, and additional features, is the use of interest rate risk free also to calculate the cost of equity. Currently, the risk-free rate is the interest rate offered by the treasury bonds issued by the Treasury and issued by the Treasury Department to reflect the government as the price of risk-free. Moreover, the integration of the risks specific to the industry also calculates the cost of equity, but still a private company and the beta is not available, so take an average bite, which is similar to the industry. This compares with a beta of beta-oriented companies are preparing. Average factor beta is 0.82.

Other information concerning the qualifications is the ratio of working capital 28.1% and the interest rate is 5.5% with respect to the tax shield, and the market value is 20% and the cost of capital of 7.86. Things have been calculated on the basis of the final WACC of this value, which is 8.33%. The underlying calculations are attached in an excel file.

Solution 4

Increase the value of Airthread with the increase in interest rates lead to a value analysis projects. Since the project-AirThread will cause to increase the flow of revenue and reduce some of the additional costs. In the given scenario, Mr. Zhang for the analysis of some non-financial factors are also essential for the transition to a high level. Company has a worth of $ 10,171 in aggregate. Everything revolves around him, and this is the best decision for the American Foundation cable.

Exhibits

Exhibit 1.        Weighted Average Cost of Capital                                                             

Rates To Be Used In Calculations

Comparable Companies

Equity Market Value

Net Debt

Debt Value (in %)

Debt/Equity Percentage

Equity Beta

Asset Beta

Universal Mobile

118,497

69,130

36.8%

58.3%

0.86

0.64

Neuberger Wireless

189,470

79,351

29.5%

41.9%

0.89

0.64

Tax Rate

40%

Agile Connections

21,079

5,080

19.4%

24.1%

1.17

0.95

Market Risk Premium

5%

Big Country Communications

26,285

8,335

24.1%

31.7%

0.97

0.75

Growth Rate

5%

Rocky Mountain Wireless

7,360

3,268

30.7%

44.4%

1.13

0.79

Cost Of Debt

6%

Average

72,538

33,033

28.1%

40.1%

1.00

0.72

Risk Free Rate

4.25%

*Data extracted From Case

Value of Debt

D/E

Un-geared BETA

Geared BETA

Cost Of Equity

Cost Of Debt

WACC

0.0%

0.0%

0.72

0.72

7.83%

5.50%

7.83%

5.0%

41.8%

0.72

1.23

10.41%

5.50%

8.24%

10.0%

24.1%

0.72

0.94

8.97%

5.50%

8.07%

15.0%

31.8%

0.72

1.05

9.50%

5.50%

8.13%

20.0%

44.3%

0.72

1.29

10.68%

5.50%

8.28%

25.0%

39.1%

0.72

1.18

10.13%

5.50%

8.32%

30.0%

0.0%

0.72

0.72

7.83%

5.50%

7.83%

Exhibit 2

EVALUTION OF PRESENT VALUE AND ADJUSTED PRESENT VALUE.

Without Synergic Effect

2008

2009

2010

2011

2012

Profit Before Interest And Tax (PBIT)

$405.90

$462.60

$557.60

$645.20

$724.40

Taxation

$162.36

$185.04

$223.04

$258.08

$289.76

Net Profit

$243.54

$277.56

$334.56

$387.12

$434.64

Un-geared Free Cash Flows:
 Amortization and Depreciation

705.2

804

867.4

922.4

952.9

Capital Expenditure

631.3

719.7

867.4

970.1

1055

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