Laura Martin: Real Options and the Cable Industry Introduction Laura Martin‚ an equity research analyst for cable stocks‚ believes that the best way to value cable stocks is through creative methods such as real options and not through more traditional or typical valuation methods such as EBITDA multiples‚ ROIC analysis and DCF analysis. In 1999 she presented at the Credit Suisse First Boston Broadband conference‚ where she wanted to portray the message that real options is a superior valuation
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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
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Laura Martin: Real Options Valuation in the Cable Industry Case Questions 1. What is the nature of Laura Martin’s job? Define the specific problem that she is addressing. A. Laura Martin is an equity research analyst. This was a unique opportunity to demonstrate her knowledge of the drivers of value in the cable industry. She was going to reveal the value of stocks of cable industry using real options‚ which is a more realistic way of evaluating the value of a project than EBITDA multiples
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there is uncertainty in forecasting future revenues‚ especially for privatefirms and those firms that produce little or no cash flows. Assumptions of multiples analysis General assumptions of multiples analysis are that the other firms in the industry arecomparable to the firm being valued. The market‚ on average‚ prices these firmscorrectly‚ but makes errors on the pricing of individual stocks. Exhibit 2 shows aselection of comparable firms‚ assuming that these firms have the same growth‚ riskand return as Cox Communications
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Laura Martin: Real Options and the Cable Industry Group 13 Adarsh N (60) Gaurav Chand (82) Hemant Kumar (83) Prateek Gupta (99) Rohan Gupta (104) Sahil Jindal (105) Individual Contribution: 16.67% for all group members Strategic Financial Management Prof. K . Sudershan Ques 1. What is the role of Laura Martin? Consider the multiples analysis developed in Exhibits 2‚ 5 & 6. What assumptions does this analysis rely upon? Role: Laura Martin is a sell-side equity analyst at
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add these values together 6. Using this method‚ Martin calculates the price of Cox’s share to be $54.29 Multiple Valuation: 1. Identify comparable firms that have growth‚ cashflow and risks similar to those of target firm whose value is in question. 2. Obtain the individual multiple or ratio of the firm’s price to their financial data‚ such as EBITDA. 3. Average these multiples to obtain the industry average multiple. 4. Adjust this industry multiple and apply it to the target firm to get
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Laura Martin case study Question 1- Laura Martin says she gets "paid to talk" - to whom is she talking? Answer: Laura Martin is talking with investors. She would meet with many company representatives including the CEO‚ CFO‚ operating division chiefs and head of investor relations. She is in connections with these investors via telephone‚ fax‚ voice mail or email. It is approximately 900 individual per month. Question 2- Given this crazy web of relationships‚ what are Martin’s incentives
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Practice Questions-“Real Options” Some questions may require you to use financial calculator or Excel. (In the final exam‚ for students without financial calculator‚ writing down the formula will be enough. However‚ those formulas must be correct to get full credit. Therefore‚ it is a good practice to check whether you are correct by using Excel for these practice questions) 1. How are real options different from financial options? 2. Consider the following project data: (1) A
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Real Options in Theory and Practice Answers to Selected End-of-Chapter Exercises Graeme Guthrie This document lists the final answers to selected exercises. A full solutions manual (with answers and working for all exercises) is available for instructors who adopt the book as a textbook. Chapter 2 2.1. (a) $32 million. (b) $29 million. (c) $31 million. Chapter 3 3.1. (a) πu = 0.302‚ πd = 0.698‚ V = 9.2566. (b) A = −0.9434‚ B = 0.15‚ V = 9.2566. 3.3. V = 10.38. 3.5. βx = 1.0: K = 0.9519
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Real Option Memo To: Dave Jacobs From: James Jones Date: November 26‚ 2012 Re: College Education Intro and type of flexibility with this option The option I’m going to discuss in this memo is whether I should continue on with my college career year after year‚ or just to abandon receiving a higher education and make my part time job a full time job. From the 7S framework‚ my real option would be the Disinvest/Shrink then the scope down option (abandon). Sources of uncertainty There
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