...SaSampa Video, Inc. 10/12/10 12.27 9-201-094 REV: OCTOBER 7, 2003 GREGOR ANDRADE Sampa Video, Inc. Sampa Video, Inc. was the second largest chain of videocassette rental stores in the greater Boston area, operating 30 wholly owned outlets. Begun in 1988 as a small store in Harvard Square catering mostly to students, the company grew rapidly, primarily due to its reputation for customer service and an extensive selection of foreign and independent movies. These differentiating factors allowed Sampa Video to compete directly with the leader in the industry, Blockbuster Video. But unlike the larger rival, Sampa had no ambitions to grow outside of its Boston territory. Exhibit 1 contains summary financial information on the company as of their latest fiscal year-end. In March 2001, Sampa Video was considering entering the business of home delivery of movie rentals. The company would set up a web page where customers could choose movies based on available in-store inventory and pick a time for delivery. This would put Sampa in competition with new internet-based competitors, such as Netflix.com that rented DVDs through the mail and Kramer.com and Cityretrieve.com that hand delivered DVDs and videocassettes. While it was expected that the project would cannibalize the existing operations to some extent, management believed that incremental sales would be substantial in the long run. The project would provide customers the same convenience as internet-based DVD rentals for the...
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...G R E G O R A N D R A D E Sampa Video, Inc. 9 - 2 0 1 - 0 9 4 R E V : O C T O B E R 7 , 2 0 0 3 Sampa Video, Inc. was the second largest chain of videocassette rental stores in the greater Boston area, operating 30 wholly owned outlets. Begun in 1988 as a small store in Harvard Square catering mostly to students, the company grew rapidly, primarily due to its reputation for customer service and an extensive selection of foreign and independent movies. These differentiating factors allowed Sampa Video to compete directly with the leader in the industry, Blockbuster Video. But unlike the larger rival, Sampa had no ambitions to grow outside of its Boston territory. Exhibit 1 contains summary financial information on the company as of their latest fiscal year-end. In March 2001, Sampa Video was considering entering the business of home delivery of movie rentals. The company would set up a web page where customers could choose movies based on available in-store inventory and pick a time for delivery. This would put Sampa in competition with new internet-based competitors, such as Netflix.com that rented DVDs through the mail and Kramer.com and Cityretrieve.com that hand delivered DVDs and videocassettes. While it was expected that the project would cannibalize the existing operations to some extent, management...
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...DUKE UNIVERSITY Fuqua School of Business FINANCE 251F/351 Individual Assignment #2 Sampa Video, Inc. Prof. Simon Gervais Spring 2010 – Term 1 In this case, you have to assess the viability of the home-delivery project that Sampa Video is considering. You are asked to do your analysis using WACC, and then using APV. In both cases, you can use the data in Exhibit 2 to calculate the unlevered free cash flows of the project. Assume that these unlevered free cash flows will grow at 5% per year in perpetuity following the year 2006; that is, if you calculate the unlevered free cash flow to be UFCF2006 in 2006, the unlevered free cash flow will be UFCF2006(1.05)t−2006 in year t = 2007, 2008, . . . When calculating the project’s value using WACC, assume that the target debt-to-value ratio of the project is 25%, and that the firm will borrow at a rate of 6.8%, as suggested in Exhibit 3. When calculating the project’s value using APV, assume that Sampa Video will initially borrow $1.5 million at a rate of 6.8% to start the project. However, assume that at the end of every year for the first five years, Sampa Video will repay $150,000 in principal (in addition to the interest on the outstanding loan) and reduce the value of the outstanding loan to $750,000 at the end of 2006. After that, assume that Sampa will keep the debt at that level (of $750,000 outstanding) in perpetuity. For your calculations with both WACC and APV, do your analysis with two different assump- ...
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...DUKE UNIVERSITY Fuqua School of Business FINANCE 351 - CORPORATE FINANCE Sampa Video, Inc. Prof. Simon Gervais Fall 2011 – Term 2 In this case, you have to assess the viability of the home-del ivery project that Sampa Video is considering. You are asked to do your analysis using WACC, an d then using APV. In both cases, you can use the data in Exhibit 2 to calculate the free cash flow s of the project. Assume that these free cash flows will grow at 5% per year in perpetuity followin g the year 2006; that is, if you calculate the free cash flow to be FCF 2006 in 2006, the unlevered free cash flow will be FCF 2006 (1 . 05) t − 2006 in year t = 2007 , 2008 ,... When calculating the project’s value using WACC, assume tha t the target debt-to-value ratio of the project is 25%, that the debt will be permanent (i.e., nev er rebalanced), and that the firm will borrow at a rate of 6.8%, as suggested in Exhibit 3. When calculating the project’s value using APV, assume that Sampa Video will initially borrow $1.5 million at a rate of 6.8% to start the project. However, a ssume that at the end of every year for the first five years, Sampa Video will repay $150,000 in pri ncipal (in addition to the interest on the outstanding loan) and reduce the value of the outstand ing loan to $750,000 at the end of 2006. After that, assume that Sampa will keep the debt at that level (of $750,000 outstanding) in perpetuity. For your calculations with both WACC...
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...Sampa Video Case Study The NPV of the project entirely equity financed is $1,228. The appropriate discounted rate is 15.8%. The APV of the project assuming the firm uses fixed debt of $750 thousand and keeps the level of debt constant in perpetuity is $1,528. The NPV of the project using after-tax WACC and assuming a constant 25% target debt-to-value ratio in perpetuity is $1,470. Answer 1 – 3, please see attached spreadsheet for calculations. 25% debt balances at year end imply interest tax shield. The value of APV is higher than the value of WACC. Because APV method doesn't have to hold debt at a constant proportion of value. So, it can be assumed that the risk of the tax shields is the same as the risk of debt. And it can be discounted at 6.8% cost of debt which is lower than WACC 15.12%. In this case, Sampa expected the project would increase its annual revenue 5% perpetuity after the year 5. So, Sampa is better to value the project with WACC approach. Because WACC is an acceptable approximation in long term when target debt ratio is set up with constant growth rate perpetuity. And it makes sense to assume a constant debt ratio because the debt capacity of the project must depend on its future value, which will fluctuate. However, if Sampa decides to use fixed amount of debt to fund the project they should use the APV approach to value the project. Because it is more convenient to value to firm when level of debt has no relationship with the firm's...
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...Sampa Video Sampa Video: essay: Question 1] What are the annual projected free cash flows? What is the NPV of the project assuming the firm was entirely equity financed? What discount rate is appropriate? Annual Projected Free Cash Flows Detailed annual projected free cash flows calculations are summarized in APPENDIX I. Free Cash Flows (FCF) are calculated using following relationship. FCF = EBIAT + Depreciation - Investments In brief, annual projected free cash flows are as following. NPV of Project 100% Equity Financed NPV is calculated by discounting annual FCFs to present (end of fiscal/calendar 2001). Here unlevered required rate of return (cost of capital) is used as a discount factor. NPV of Project in $K is = $1,228K @ Discount Factor 15.8% Appropriate Discount Rate We think the appropriate discount rate should be equal to unlevered required rate of return (cost of capital) for the project. Procedure 1. Asset Beta of Twin = 1.50 … Given, Case Material Project Asset Beta = 1.50 2. Market Risk Premium = 7.2% …Given, Case Material 3. Risk-free Rate = 5.0% …Given, Case Material 4. Using CAPM, Discount Rate = 5.0% + 1.50X7.2% = 15.8% Appropriate Discount Rate = Cost of Capital = 15.8% Question 2] Value the project using the Adjusted Present Value (APV) approach, assuming the firm raises $750,000 of debt to fund the project and keeps the level of debt constant in perpetuity. Detailed calculations for project’s NPV using APV...
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...Sampa Video, Inc. 1. What is the appropriate discount rate and the value of the project assuming the firm is going to fund it with all equity? “The discount rate of a project should be the expected return on a financial asset of comparable risk” To estimate Sampa Video’s cost of equity capital we used the CAPM model, in which rf refers to the risk free rate, to the market risk premium, and ß to the company Beta (Table 1). Since the Beta of the company wasn’t known, we decided to use an Industry Beta as a proxy. Kramer.com and Cityretrieve.com. are both competitors of Sampa Video in the business of home delivery of movie rentals and we believe that the operations of Sampa Video are similar to the operations of its competitors. Therefore, we estimated the company’s Beta using the asset Beta for Kramer.com and Cityretrieve.com. Thus, To determine the value of the project we’ve used incremental Cash flow approach. (Table 2). We started by computing the Incremental Free Cash Flows (FCF) from 2001 until 2006. Then using the discount rate of 15,8%, we calculated the present value of the future Free Cash Flows until 2006. After that, based on the assumption that after 2006 CF would grow at 5%, we estimated the terminal value of the company. Finally, based on these assumptions, the NPV of the project would be: 1228,485 2. What is the Internal Rate of Return (IRR) of this project? The internal rate of return is the rate that would make the net present...
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...Corporation Finance (Course 35200) Spring 2016 Professor Kelly Shue Assignment # 2 –Sampa Video Names: | Signatures: | Student # | Section: | Louise (Chiao-ling) Chang | | 458381 | 03 | Joonmo Lee | | 458378 | 03 | Sonja Schut | | 452395 | 03 | Alvin(Yaxin) Yu | | 456062 | 03 | Honor Code: I pledge my honor that I have not violated the Honor Code in preparation of this case assignment. 1. What are the annual projected free cash flows? What is the NPV of the project assuming the firm was entirely equity financed? What discount rate is appropriate? Since we assume that this project will be entirely equity financed, we can use ra. Assuming that this project has similar risk with that of Kramer.com & Cityretrieve.com, we can use their average beta to compute the discount rate based on CAPM model: ra=5.0%+1.5*7.2%=15.8%. Given that FCF = EBIAT + DEP – INV, we thus have the FCF for the year 2001 to 2006 as follows: Year | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | FCF (‘000) | (1500) | (112) | 6 | 151 | 314 | 495 | As from year 2007 onwards, the FCF growth rate is 5%, the continuation value as of 2006 is 495*(1+5%)/(15.8%-5%) = 4813, therefore, the total FCF for the year 2001 to 2006 is as follows: Year | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | Total FCF (‘000) | (1500) | (112) | 6 | 151 | 314 | 5308 | Using NPV equation with ra = 15.8%, we therefore have NPV = $1,228,500 2. Value the project...
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...Sampa Video: essay: Question 1] What are the annual projected free cash flows? What is the NPV of the project assuming the firm was entirely equity financed? What discount rate is appropriate? Annual Projected Free Cash Flows Detailed annual projected free cash flows calculations are summarized in APPENDIX I. Free Cash Flows (FCF) are calculated using following relationship. FCF = EBIAT + Depreciation - Investments In brief, annual projected free cash flows are as following. NPV of Project 100% Equity Financed NPV is calculated by discounting annual FCFs to present (end of fiscal/calendar 2001). Here unlevered required rate of return (cost of capital) is used as a discount factor. NPV of Project in $K is = $1,228K @ Discount Factor 15.8% Appropriate Discount Rate We think the appropriate discount rate should be equal to unlevered required rate of return (cost of capital) for the project. Procedure 1. Asset Beta of Twin = 1.50 … Given, Case Material Project Asset Beta = 1.50 2. Market Risk Premium = 7.2% …Given, Case Material 3. Risk-free Rate = 5.0% …Given, Case Material 4. Using CAPM, Discount Rate = 5.0% + 1.50X7.2% = 15.8% Appropriate Discount Rate = Cost of Capital = 15.8% Question 2] Value the project using the Adjusted Present Value (APV) approach, assuming the firm raises $750,000 of debt to fund the project and keeps the level of debt constant in perpetuity. Detailed calculations for project’s NPV using APV approach and...
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...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） Initial invest. (total cost) Inc. rev. Inc. cost Deprec. OP CF NOP CF Project CF Financing Interest (AT) Repay. Fin. Rel. CF Total CF 8,000,000 0 (8,000,000) 8,000,000 (8,000,000) ） （t=1） ） （t=2） ） （t=3） ） （t=4） 6,000,000 (2,000,000) 2,000,000 3,500,000 6,000,000 (2,000,000) 2,000,000 3,500,000 6,000,000 (2,000,000) 2,000,000 3,500,000 6,000,000 (2,000,000) 2,000,000 3,500,000 3,000,000 3,500,000 3,500,000 3,500,000 6,500,000 (360,000) (360,000) (360,000) (360,000) (8,000,000) (360,000) 3,140,000 (360,000) 3,140,000 (360,000) 3,140,000 (8,360,000) (1,860,000) ...
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...SEATTLE PACIFIC UNIVERSITY School of Business and Economics BUS 6220 CRN 43797 Office: McKenna Hall 205 Financial Analysis Phone: 281-3523 Dr. Herbert Kierulff Hours: Th. 1-6 and by appt. hkierulf@spu.edu Classroom: McKenna 111 "…value reflects only our opinions and not the true worth of the things themselves." Francisco de Osuna, Third Spiritual Alphabet COURSE OBJECTIVES: By the end of this course you should be able to demonstrate greater competence in: * Doing short and long term financial planning and budgeting, strategic analysis and decision making under conditions of rapid change and uncertainty. * Applying the fundamental and practical principles of valuation to pricing and to real investment opportunities. * Gathering information, separating relevant from irrelevant factors, selecting and evaluating relevant options with regard to their consequences, and selecting and defending a course of action. * Conceptualizing complex issues and reducing them to coherent written and oral statements. * Integrating valuation and investment analysis with the other functional areas of business administration including business processes and information technology. * Working effectively in group...
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...EXPERIENCE IN EDUCATION AS EDUCATOR “Education is the most powerful weapon which you can use to change the world” Nelson Mandela. I am the one who love science so much! As my father told me since I was in high school. He told me that I can get the goodness in this world or other world after the death by using knowledge, science. So I really use it as my soul of learning on my life. By loving science, I would hope that the knowlegde will love me and be my best friend in make the changes in life. As Mr. Nelson Mandela said, “Education is the most powerful weapon which you can use to change the world”. That is really a powerful thought that make him really change the world. He struggled for the life of his peole in South Africa. He was the first black president in South Africa (1994-1999). And his powerful influence not only in his country, but in the world. His powerful thought is still popular until now. He is my inspiration about education. I had been teaching in Indonesia since December 2010 until November 2013 before I came to the Philippines to continue my study in Maternal and Child Nursing. I was an educator in the private scool of midwifery and also educator in alternative school in Karanganyar Regency, Central Java, Indonesia. This school is for children and teenage who were unfortunate enough to continue their high school because they had to work to get money for their family. It was really a worthy experience to teach in alternative school. My first experience...
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...Case Studies Solutions Case Studies Solutions,Article Writing,Assignments,Research Work,Home Work MenuSkip to content Home How We Work ? Refund Policy How to Order ? Disclaimer Contact Us Finance Cases List POSTED ON MARCH 8, 2013 Hello, If u want us to solve any case study from below list, do contact us anytime, We are here to provide the experience, expertise, and professionalism that you are looking for , Our tutors are available 24/7 to assist you what you need, Click Here to submit your Order. ======================================================================================= Acquisition of Consolidated Rail Corp. by Benjamin C. Esty Airbus A3XX: Developing the World’s Largest Commercial Jet by Benjamin C. Esty American Chemical Corp.by William E. Fruhan, John P. Goldsberry American Home Products Corp.by David W. Mullins AQR’s Momentum Funds by Daniel B. Bergstresser, Lauren H. Cohen, Randolph B. Cohen, Christopher Malloy Arundel Partners: The Sequel Project by Timothy A. Luehrman AXA MONY by Andre F. Perold, Lucy White Beta Management Co. by Michael E. Edleson Butler Lumber Co. by Thomas R. Piper Cartwright Lumber Co.by Thomas R. Piper Citigroup 2007: Financial Reporting and Regulatory Capital by Edward J. Riedl, Suraj Srinivasan Clarkson Lumber Co. by Thomas R. Piper Cooper Industries, Inc. by Thomas R. Piper Cost of Capital at Ameritrade by Erik Stafford, Mark L. Mitchell Debt Policy at UST, Inc. by Mark L. Mitchell Dell’s Working Capital...
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