Essay about Radio One Case Study

Words: 1589
Pages: 7

Part 1:
In 2000, Radio One, Inc. sees strategic opportunity in the opportunity to grow through acquisition, following a Clear Channel divestiture mandated by the FCC. The divestiture poses the opportunity to Radio One to acquire twelve (12) urban stations that are in the top 50 African American markets in the U.S. Even though the company saw tremendous growth through acquisition over the prior decade, this unique situation has the potential to generate significant shareholder value and further increase market dominance. If they choose to acquire these 12 channels, along with 9 other stations in a separate acquisition, it would double the size of Radio One and give it a national presence in the largest African American markets.
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This figure derived from net income, net working capital, capital expenditures and depreciation. There were many assumptions we used to get these numbers, such as, corporate expenses growing at 15% a year, and net working capital was an assumed 20% of net revenue. Capital expenditures were also assumed to be 20% of the previous year. If we were off on just a few percentage points our Free Cash Flow will be off, thus the 2004 terminal value will likely be off.

If the cash flow did not grow after 2004 then you may make investments based on a 0% growth rate for the future. You may have an opportunity costs if you estimate the growth rate to be zero and miss out on an opportunity that required a 2 or 3% growth rate. At a