Introduction: Sampa Video‚ Inc. was a local video rental store which maintained a large share of the movie rental market in Boston Massachusetts in the 90’s. The firm was looking to increase their base from those who visited the store to online ordering and delivery within the Boston area. They looked to increase their ability to grow by more than double the usual yearly growth rate for a five year span. By opening up the online and delivery service they hoped to increase their sales by 10% yearly
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Sampa Video‚ Inc. 1. What is the appropriate discount rate and the value of the project assuming the firm is going to fund it with all equity? “The discount rate of a project should be the expected return on a financial asset of comparable risk” To estimate Sampa Video’s cost of equity capital we used the CAPM model‚ in which rf refers to the risk free rate‚ to the market risk premium‚ and β to the company Beta (Table 1). Since the Beta of the company wasn’t known‚ we decided to use an
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Depreciation -200 -225 -250 -275 -300 EBIT -20 135 335 565 825 Tax Expenses 8 -54 -134 -226 -330 Net Income -12 81 201 339 495 CAPX Investment in W/C Scenario 1 Free Cash Flows EBIAT Depreciation CAPX Change in W/C Free Cash Flows Terminal Value 300 0 All equity finance 1 -12 200 300 0 -112 @cost of asset -96.72 4.47 97.24 174.62 300 0 300 0 300 0 300 0 2 81 225 300 0 6 3 201 250 300 0 151 4 339 275 300 0 314 5 495 300 300 0 495 4812.5 237.72 2311.15 Present Value of FCF Present Value
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Sampa Video Valuation Case Study Free Cash Flow Projection: Based on all the given information and assumptions‚ the free cash flow projection for the company could be calculated as the table shown below (Exhibit 1‚ in thousands of $). The formula used for the calculation from year 2002 to 2006 is: FCF = (EBIT+Depr-Tax) + CAPX + Δ NWC. Starting at year 2007‚ the expected cash flow will be a growing perpetuity at an increasing rate of g=5%. Thus the terminal value could be calculated by the formula
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Case 1: Sampa Video Case FBE 432 - J. K. Dietrich January 29th‚ 2013 Meghan Ammon Christina Daniele Sarah Riley To: Sampa Video Executive Committee From: Team C Consultants– Meghan Ammon‚ Christina Daniele‚ Sarah Riley Date: January 29‚ 2013 Subject: Sampa Video Home Delivery Expansion Analysis Introduction Sampa Video’s expansion into home delivery represents a tremendous business opportunity for the firm. However‚ before you make the initial investment this coming January‚ it
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Chapter 9 Video Case Study 1. In the 21st century what trends in the environmental forces (social‚ economic‚ technological‚ competitive‚ and regulatory) (a) work for and (b) work against success for Prince Sports in the Tennis industry? a) The social media and technology have helped the success for Prince Sports. b) The economy and competitors work against the success of Prince Sports. 2. Because sales of Prince Sports in Tennis-related products depends heavily on
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Thoma Bravo – Citect Corporation (HBS 9-209-022) Study Questions 1. Do you think TB or Schneider would create more value as the owner of Citect? 2. TB would assume what risks if they are the winning bidder? 3. Should TB continue to bid on Citect and at what price? Are the expected ROIs and IRRs to TB sufficient at your revised bid amount? (* note: a detailed evaluation model will be constructed during the class session *) Study Questions 1. Is Newell just another conglomerate? How
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Case: Land Securities Group (A): Choosing Cost or Fair Value on Adoption of IFRS Case Number: 9-105-014 Topic: Financial Reporting and Control Description: A U.K. real estate firm‚ required to adopt international accounting standards (IAS) by 2005‚ must change the reporting of its primary asset (investment property) from the revaluation model under U.K. GAAP to either the cost or fair-value model under IAS. This would have a number of effects on European investment property firms‚ including
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1585=$1‚228‚485 2. If the firm raises $750‚000 of debt to fund the project and keeps the level of debt constant in perpetuity‚ we can consider the interest tax shields as a perpetuity. annual interest tax shield=750000*6.8%*40%=$20‚400 In this case‚ we assume the risk of the interest tax shield equals the risk of the debt. rTS=rD=6.8% PVTax Shield=204006.8%=$300‚000 APV=1228485+300000=$1‚528‚485 3. We has known that rU=15.8%‚ rD=6.8%‚DV=25%‚EV=75%‚ through the formula rU=rDDV+rEEV ‚ we
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FINS5530 HBS Case Assignment Semester 2‚ 2013 Instructor: Lixiong Guo Readings: 1. Note on Bank Loans. 2. US Bank of Washington case. Assignment: Please prepare a Credit Proposal Memo similar to the one shown in Exhibit 1 of “Note on Bank Loans”. Given the limited information you have from the case‚ you are not expected to include all components of Exhibit 1. The following is a suggested structure of your report: Purpose of the credit extension o Keep this part short
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