Prepare the Airthread Connections case using the following questions as a guide:
1. What methodological approach (APV, WACC, FTE, or some combination) should Ms. Zhang use to value Air Thread? Hint: It may be possible to use more than one techniques simultaneously.
The valuation of the Airthread Connections is conducted to assist American Cable Communication to decide if the acquisition of the Airthread Connections should be processed to achieve potential synergies. We access the net value of the Airthread Connections by adjusting its present value (APV). We chose APV as our business valuation method because Airthread Connection’s financial information required by APV method is relatively sufficient and solid comparing with the information required by other valuation methods. We believe that the good quality of data can guarantee the reliability of our valuation. Our valuation process includes the following six steps. 1. Decide the present value of unlevered free cash flows. 2. Evaluate the weighted average cost of capital. 3. Appraise the value of tax shields. 4. Access the terminal value. 5. Estimate the present value of non-operating assets. 6. Applying the illiquidity discount.
2. What discount rate should Ms. Zhang use for unlevered FCF for 2008-2012? Is this the same rate that should be used to calculate the TV? Why or why not?
3. Develop an estimate of the long-term steady-state growth rate for use in the TV calculation.
4. What is the total value of AirThread before considering any synergies?