The decision to;be made in this case is whether or not to repurchase shares in the market and that decision would be;based on determining the intrinsic value of the shares and comparing that to the market price. If the;shares are really worth more than what they are selling for in the market, the repurchase makes sense.;This case will require that you build a cash flow forecast similar to the one that you did for the Aurora;case so look back at the Excel template. Build your forecast out to the end of the 2015 fiscal year and;then project a ?steady state? forecast for 2016 which you will need to calculate a terminal value.;Calculating the value of the enterprise involves a couple of steps. First, calculate the present value of;the forecast cash flows up to and including 2015. Then use the constant growth model to calculate the;value of all cash flows from 2016 onwards. Review previous cases and notes, as well as case 42 in;Bruner, to figure out how to do that. Obviously you can?t do your valuation calculations without a;WACC and that will be one of the challenges in the case. You have what you need to calculate kd and ke;as well as to weight them to get WACC so see what you can do. Use the CAPM to come up with your;cost of equity, and use 5% as the equity market premium for this case. Once you have valued the cash;flows and the terminal value, you end up with the value of the entire enterprise. Subtract the debt to;get the value of equity, divide by number of common shares outstanding and that will give you an;intrinsic share value to compare to the market price. prepare the required forecast, value the firm and its;equity, and come up with an intrinsic value of the shares assuming the bullish (optimistic) scenario;described in the case.
Paper#28285 | Written in 18-Jul-2015Price : $32