The calculation of each cash flow required us to use the projections from AirThread Connections that are given in the Exhibit 1 of the case allowing us to know the Total Revenue, EBITDA, EBIT and the Unlevered Net Income to be able to compute the Unleveraged Cash Flow (UFCF) from 2008-2012.
As well we used Depreciation & Amortization, Capital Expenditures and the assumptions established in AirThread Connections Exhibit 1 case to make the adjustments that Working Capital needed to fully calculate the Unleveraged Cash Flows from 2008 – 2012. Revenue Projections | | 2008 | 2009 | 2010 | 2011 | 2012 | Service Revenue | | 4,194.33 | 4,781.54 | 5,379.23 | 5,917.15 | …show more content…
First we obtained our reinvestment rate using the following formula (Net Capital Expenditures + Change in Working Capital) ÷ EBIT (1-t), notice we subtracted depreciation and amortization from the formula.
Reinvestment Rate = (1,055 + 13.9 - 952.9) ÷ 724.4 (1- .40) = 26.68%
Secondly we calculated the Return on Capital, using the formula Return on Investment = ROC =EBIT (1-t) ÷ (BV of Debt + BV of Equity), where BV of Debt is interpreted as Long-Term Debt and where BV of Equity is our Total Earnings. Excluding the stake that minor investors possesses, since our BV of Debt only considers the Retained Earnings and Common Stock & Paid-In Capital.
Return on Capital = 724.4 (1- .40) ÷ (2,459 + 1623.9 -) = 10.64 %
Finally, the Return on Investment is obtained by using the formula (ROC = Reinvestment Rate x ROC).
Expected Growth Rate = (26.68 x 10.64%) = 2.84061705613001 %
4. What is the total value of AirThread?
Following set of formulas to calculate the total value and including the perpetuity value, most of the data in the table has been previously computed.
AirThread Connections Total Value | Total Value of Un-Levered Cash Flows | 1,368.86 | Present Value of Perpetuity | 11,125.49 | Value of Operating Assets | 12,494.35 | Value of Non-Operating Assets | 1,187.33 | Estimated Total