Laura Martin Real Options and Cable Industry
Advanced Corporate Finance and Modeling – FINA0065-1
Assignment #1 – Laura Martin: Real Options and the Cable Industry
1. Consider the multiples analysis developed in Exhibits 2,5 & 6
Please describe the method of ‘Multiples’ using case numbers and answer to the following questions: 1.1. What assumptions does this analysis rely upon?
1.2. How is Martin’s regression analysis different from/similar to traditional multiples analysis?
1.3. Do you agree with her interpretation of the regression analysis?
2. Consider the DCF analysis presented in Exhibit 7
Please describe the method of “Discounted Cash Flows” using case numbers and answer to the following questions:
2.1. How reasonable are Martin’s forecasts for EBITDA and her assumptions about the asset intensity of the business?
2.2. How plausible is Martin’s terminal value multiple?
2.3. What are the tradeoffs in using multiples versus the DCF analysis?
3. Real options
Please describe the method of “Real options” using case numbers and answer to the following questions: 3.1. What is the analogy Martin is trying to draw with options? What is the “stealth tier”? What is the unit of analysis? In what way is the stealth tier like a call option? What is the underlying asset price?
Strike price? Volatility?
3.2. Why is Martin pushing real options valuation as an alternative to DCF analysis? In what ways might the “stealth” tier be incorporated into the DCF analysis and multiples analysis?
3.3. How good an analogy is the “stealth tier” to a real option? Where does the analogy work? Where doesn’t it work?
4. The role of equity analysts in Capital Markets
Please describe the role of equity analysts in Capital Markets.
Assignment #1 – Laura Martin: Real Options and the Cable Industry
1. Consider the multiples analysis developed in Exhibits 2,5 & 6
Please describe the method of ‘Multiples’ using case numbers and answer to the following questions: 1.1. What assumptions does this analysis rely upon?
1.2. How is Martin’s regression analysis different from/similar to traditional multiples analysis?
1.3. Do you agree with her interpretation of the regression analysis?
2. Consider the DCF analysis presented in Exhibit 7
Please describe the method of “Discounted Cash Flows” using case numbers and answer to the following questions:
2.1. How reasonable are Martin’s forecasts for EBITDA and her assumptions about the asset intensity of the business?
2.2. How plausible is Martin’s terminal value multiple?
2.3. What are the tradeoffs in using multiples versus the DCF analysis?
3. Real options
Please describe the method of “Real options” using case numbers and answer to the following questions: 3.1. What is the analogy Martin is trying to draw with options? What is the “stealth tier”? What is the unit of analysis? In what way is the stealth tier like a call option? What is the underlying asset price?
Strike price? Volatility?
3.2. Why is Martin pushing real options valuation as an alternative to DCF analysis? In what ways might the “stealth” tier be incorporated into the DCF analysis and multiples analysis?
3.3. How good an analogy is the “stealth tier” to a real option? Where does the analogy work? Where doesn’t it work?
4. The role of equity analysts in Capital Markets
Please describe the role of equity analysts in Capital Markets.