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combination of WACC and APV methods.
As stated above, ACC will use the Leverage buy out (LBO) approach, which means that the debt to equity ratio of AirThread will not be the same from 2008 to 2012, so APV approach would be more suitable to valuate the *cash*** flows** between 2008 and 2012.
After 2012, AirThread will de-lever to industry norm and thus, they will have a target leverage ratio; therefore WACC is best to estimate the terminal value.
Finally, regarding the valuation of non-operating investments...

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*Free**cash*** flow**
In corporate finance,

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*Free**Cash*** Flows**
Revised by C. Chang. Copyright 1996 by The McGraw-Hill Companies, Inc
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What is FCF? FCFF? FCFE?
How Do You Calculate FCFF?
FCFF Calculation– the CFO Method
FCFF Calculation– the EBIT Method
Equivalence: FCFF(CFO) vs FCFF(EBIT)

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finance the purchase with Financing Alternative #1 (debt and equity financing from an investment firm) or Alternative #2 (all debt financing from a bank). The financing alternatives are discussed on page 4 of the case.
You should do the discounted *cash*** flow** valuation of the deal using Adjusted Present Value. The question is “What is Pinkerton worth to CPP (Wathen’s sole proprietorship)?” The value of Pinkerton to CPP is made up of three parts:
1. the value of Pinkerton as a stand-alone firm (but...

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evening before
discussion
Be prepared to discuss the case in class (your answers, your
analysis, etc.)
1
Valuation - Use NPV approach
How to make investment decisions:
1.
Estimate (expected) *cash*** flows** in each time period
2.
Choose an appropriate discount rate
3.
Use discounted

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points)
* From the statement of AirThread case, we know that American Cable Communication want to raise capital by Leveraged Buyout (LBO) approach. This means ACC will finance money though equity and debt to buy AirThread and pay the debt by the *cash*** flows** or assets of AirThread.
* In another word, it’s a highly levered transaction using a fixed WACC discount rate; however the leverage is changing in fact.
* If we want to use WACC method, one assumption must be met: this program will not...

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so. (10 points) This strategy does not consider risk.
3. The NuPress Valet Company has an improved version of its hotel stand. The investment cost is expected to be 72 million dollars and will return 13.50 million dollars for 5 years in net *cash*** flows**. The ratio of debt to equity is 1 to 1. The cost of equity is 13%, the cost of debt is 9%, and the tax rate is 34%. What is the NPV of the project? (10 points)
WACC = .5*13+.5*9*(1-.34) = 9.47%
PMT = 13,500,000, i=9.47%, n=5, PV = ?; NPV =...

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and *Cash*** Flow**.
Pursue Big-Box Distribution
Taking on Mega- Mart Inc. as a customer resulted in impressive top-line growth but the company's EBIT margin declined.
Revenue'16'17'1805K10K $7,100
Opportunity EBIT'16'17'180250500
Opportunity

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The financial statements of Lioi Steel Fabricators are shown below, with the actual results for 2010 and the projections for 2011. *Free**cash*** flow** is expected to grow at a 6 percent rate after 2005. The weighted average cost of capital is 11%.
Income Statement for the Year Ending December 31
(Millions of Dollars Except for Per Share Data)
Actual Projected
2010 2011
Net sales $500.0 $530.0
Costs (except depreciation) 360.0 381.6
Depreciation ...

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increased sharply.
* The ** cash** and short –term investment fell
Effects of expansion on Liability & Equity side of the balance sheet:
* Total current liability increased which inferred that suppliers were financed some amount spent for expansion
* Long-term debt also increase to help the expansion
* Only small amount of income that can be retained since it encounters a net loss and even it needs to pay the dividend.
b. Conclusion from the

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