Radio One, Incorporated
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 30BCF, can it offer as much as 30BCF for the new stations without reducing the stock price? 5. What price should Radio One offer for the new stations?
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