The Value of Comcast before the Acquisition:
We use the DCF (Discounted Cash Flow) analysis to estimate the value of Comcast before the acquisition.
First, we want to calculate the expected future free cash flows available (Appendix 1) after making necessary expenditures for the firm to continue as a going concern. In order to get the projected financial statements, we made following assumptions: * Growth rate: We believe Comcast has entered the mature stage of the business lifecycle. So its growth rate should be relatively stable and not higher than the general GDP growth rate. We assume its revenue will grow at 1% from 2011 to 2015 and then decrease to 0 because we don’t believe the industry has a prospective future. * EBITDA: According to the historical data, EBITDA accounts 42% for the revenue on average. We use this average percentage to predict the future EBITDA. * Capital Expenditure: Based on the historical data on the financial statements, it is obvious that Comcast’s capital expenditure has a decreasing trend. So we just assume the company’s Capex is declining at an annual rate of 1% since 2010. * Net Working Capital: Also according to the historical growth rate of NWC, we chose 10% as the annual growth rate of NWC. * WACC: We use the average WACC of the CATV system industry which is 8%. * Unlevered free cash flow is often useful when an investor is interested in acquiring a company. The company's unlevered free cash flow is important since it indicates the company's free cash flow if their existing debt was paid off. Since this transaction is an acquisition, we use unlevered free cash flow in our analysis.
Then we could project all necessary data and calculate the UFCF (unlevered free cash flow) from 2011 to 2015 using this formula:
UFCF = EBITDA – Capex – Changes in Net Working Capital – taxes
