Present Value

AEREO PRODUCTS ( A Hypothetical)

 Assume it is January 1, 2013.  Following a Federal Court’s decision to permit Aereo to expand its operations into additional markets, several potential merger partners have surfaced. The company projects rapid Sales growth through the end of 2014; and the merger partners have asked for pro forma financial statements to assist in making a current estimate (PV) of the company’s worth.  Management has prepared the following Income Statements; and provided estimates of asset requirements to support the projected growth

Selected pro forma balance sheet information:  Aereo expects to purchase $10M in Fixed Assets in 2013 and $17M in 2014. New NWC requirements will be $6.5M in 2013 and that requirement will grow at one-half the Rate of Sales Growth in 2014.  Given that Aereo is an early stage company and the uncertainty of the pending litigation, the appropriate investment risk factor is assumed to be 40%.

What is the Present Value of the Total CFs which Aereo expects to generate in 2013 and

 2014? (Use the Gompers Model formula—mostly just abstract the data form the income statement and the selected additional information.  This is VERY SIMPLE)(HINT: the PV is negative)

            2013

            2014:

If an outsider offers $105M to purchase all equity of the firm, how much value is being attributed to Cash Flows occurring after 2014 (the terminal value)? (REMEMBER THAT TOTAL VALUE IS JUST DISCREET + TV CFs). (This is a subtraction question)

Estimate the value of the discreet CFs derived from the financials; and imputed the TV. Use the Gompers CF formulae and apply the discount factors.