We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Radio One Case Essay

Essay Topic:

Sorry, but copying text is forbidden on this website!

This case involves whether Radio One should purchase the 21 radio stations from Clear Channel, Davis and IBL LLC and the impact of the acquisition to the investors and on the market. Examining the stations it fits with Radio One’s Corporate Strategy and they have the ability to bid first on a group of stations that would double Radio One’s size. Also this purchase would create national coverage for Radio One.

First we must look at the Return on Asset of Radio One.

With a Risk Free rate of 6.3% given from Exhibit 10; I am using 30 years because that is the highest and most logical for this particular industry. I calculated the Risk premium from the average of both the AAA and AA Corporate bonds on Exhibit 10; the result was 7.2%. Finally the Asset Beta given in Exhibit 8 of .82 .Thus the Return on the Asset is roughly 12.2%

Calculating the NPV of the stations helps Radio One see if taking on this acquisition is worth the value.

Using Exhibit 9 for the project forecasting and continuing on for the said 30 years you get 1,178,171 with the NPV set at 12.2% and each year growing at 6%. The reasoning for 6% is because from optimizing between 4-8%; 6% was in the middle.

What is the market value of Radio One? To find this I took the price per share $97 and multiplied it by the number of shares 16,137,000 getting a market value of $1.5 billion. Now to investigate the WACC of Radio One. Rd = Interest paid of $15.3m over Market Price = $82.6 million = 18.53% Re = CAPM = 6.28 + Beta of .82*7.7 (Using the BBB Corp Bond Rate) =12.44. I propose that Radio One should offer the said price of 1.3 billion for the 21 stations. They should use the payment of the debt of $82 million with the use of current investments available for sale, then use the remainder in the deal for. This would cover the cash portion making the bid attractive because of the balancing of the debt before taking on the acquisition. The remainder of the funds will come from the shares together to create the total of 1.3 billion. Being the first to bet and with this attractive offer Radio One should have the strongest position in the deal and come out with an acquisition that doubles their size and giving them a competitive position in nation wide coverage.

How to cite this page

Choose cite format:

Radio One Case. (2016, Feb 28). Retrieved from https://studymoose.com/radio-one-case-essay

We will write a custom sample essay onRadio One Casespecifically for you

for only $16.38 $13.90/page
Order now

Our customer support team is available Monday-Friday 9am-5pm EST. If you contact us after hours, we'll get back to you in 24 hours or less.

By clicking "Send Message", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
No results found for “ image
Try Our service

Hi, I am Sara from Studymoose

Hi there, would you like to get such a paper? How about receiving a customized one? Click to learn more https://goo.gl/CYf83b


Hi, I am Sara from Studymoose

Hi there, would you like to get such a paper? How about receiving a customized one? Click to learn more https://goo.gl/CYf83b


Your Answer is very helpful for Us
Thank you a lot!