OtherPapers.com - Other Term Papers and Free Essays
Search

Sampa Video Case

Essay by   •  August 3, 2011  •  Essay  •  2,449 Words (10 Pages)  •  2,056 Views

Essay Preview: Sampa Video Case

Report this essay
Page 1 of 10

Sampa Video, Inc.

*A small video chain is deciding whether to engage in a new line of delivery business and is conducting an economic analysis of the valuation impacts of this decision.

*This is a case basically regarding how to measure the benefits of financial leverage via different valuation approaches.

Firm valuation (discount cash flow) and cost of capital

*When you use the after-tax cost of capital to be the discount rate, you basically take in the effect of the financing.

*If you discount the project cash flows (without financing) by the after-tax cost of capital, you will get the exact net present value as you use it to discount the total cash flows (project cash flows plus the financing cash flows).

*That is, when you use the after-tax cost of capital to discount financing related cash flows, the net present value would be zero.

(t=0)

(t=1)

(t=2)

(t=3)

(t=4)

Initial invest.

(total cost)

(8,000,000)

Inc. rev.

6,000,000

6,000,000

6,000,000

6,000,000

Inc. cost

(2,000,000)

(2,000,000)

(2,000,000)

(2,000,000)

Deprec.

2,000,000

2,000,000

2,000,000

2,000,000

OP CF

3,500,000

3,500,000

3,500,000

3,500,000

NOP CF

3,000,000

Project CF

(8,000,000)

3,500,000

3,500,000

3,500,000

6,500,000

Financing

8,000,000

Interest (AT)

(360,000)

(360,000)

(360,000)

(360,000)

Repay.

(8,000,000)

Fin. Rel. CF

8,000,000

(360,000)

(360,000)

(360,000)

(8,360,000)

Total CF

0

3,140,000

3,140,000

3,140,000

(1,860,000)

(t=0)

(t=1)

(t=2)

(t=3)

(t=4)

Project CF

(8,000,000)

3,500,000

3,500,000

3,500,000

6,500,000

NPV (at 4.5%)

7,072,024

(t=0)

(t=1)

(t=2)

(t=3)

(t=4)

Total CF

0

3,140,000

3,140,000

3,140,000

(1,860,000)

NPV (at 4.5%)

7,072,024

(t=0)

(t=1)

(t=2)

(t=3)

(t=4)

Fin. Rel. CF

8,000,000

(360,000)

(360,000)

(360,000)

(8,360,000)

NPV (at 4.5%)

0

...

...

Download as:   txt (9.6 Kb)   pdf (206 Kb)   docx (13.3 Kb)  
Continue for 9 more pages »
Only available on OtherPapers.com
Citation Generator

(2011, 08). Sampa Video Case. OtherPapers.com. Retrieved 08, 2011, from https://www.otherpapers.com/essay/Sampa-Video-Case/8315.html

"Sampa Video Case" OtherPapers.com. 08 2011. 2011. 08 2011 <https://www.otherpapers.com/essay/Sampa-Video-Case/8315.html>.

"Sampa Video Case." OtherPapers.com. OtherPapers.com, 08 2011. Web. 08 2011. <https://www.otherpapers.com/essay/Sampa-Video-Case/8315.html>.

"Sampa Video Case." OtherPapers.com. 08, 2011. Accessed 08, 2011. https://www.otherpapers.com/essay/Sampa-Video-Case/8315.html.