Radio One, Incorporated

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Radio One, Incorporated
In general
 Assume a corporate tax rate of 34%, and a market risk premium of 7.2%.  Data in exhibit 9 are in $1,000.
 Show and explain all your calculations, i.e. the reader/grader must be able to follow your reasoning and be able to understand all your calculations without using time to reconstruct your numbers.

 Make additional assumptions if necessary, but make them explicitly.  Good luck. 
1. Why does Radio One want to acquire the 12 urban stations from Clear Channel Communications in the top 50 markets along with the 9 stations in Charlotte, North Carolina, Augusta, Georgia, and Indianapolis, Indiana? What are the benefits and risks? 2. What price should Radio One offer on a discounted cash flow analysis assuming all equity financing?  Show and explain cash flows items needed to be estimated to get relevant cash flows in 2001 – 2004.  Estimate relevant cost of capital to calculate PV of relevant cash flows assuming acquisition is all equity financed.  Estimate terminal value of potential acquisitions after forecast period ends in 2004.  What price should Radio One offer on a discounted cash flow analysis using relevant cash flow in 2001 – 2004 and a terminal value in 2004?

 Are the cash flow projections (in forecast period and terminal value) reasonable? If not: Revise your calculations.
3. What price should Radio One offer on a transaction multiple for comparable transactions analysis? What price should Radio One offer on a trading multiple of comparable firm analysis? 4. Assuming that Radio One’s stock price is 30BCF, can it offer as much as 30BCF for the new stations without reducing the stock price? 5. What price should Radio One offer for the new stations?
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