...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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...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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...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 wider selection of movies available on videocassettes. Sampa also planned...
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...www.hemonline.com BROKING | DEPOSITORY | DISTRIBUTION | FINANCIAL ADVISORY OUTLOOK 2009: PREFERRED SECTORS AND COMPANIES FOR INSTITUTIONAL CLIENTS Analyst: ANKIT KHAITAN akhaitan@hemonline.com www.hemonline.com BROKING | DEPOSITORY | DISTRIBUTION | FINANCIAL ADVISORY INDEX INDIAN ECONOMY - 01 BANKING INDUSTRY OVERVIEW RECENT NEWS PRODUCTS & SERVICES ARE INDIAN BANKS SAFE??? GRAPHICAL PRESETATION RBI STEPS TO FIGHT AGAINST LIQUIDITY CRUNCH ANALYSIS OF BANKING SECTOR A) CRAMELS STRATEGY B) PORTER'S FIVE FORCES MODEL C) PEST ANALYSIS D) SWOT ANALYSIS GROWTH PROSPECT & MARKET OPPORTUNITIES THINGS TO WATCH & KEY TAKEAWAYS - 02 - 03 - 04 - 05 - 06 - 07 - 08 - 09 - 10 -11 - 12 - 13 - 14 - 15 - 16 - 17 - 18 - 19 - 20 - 21 - 22 - 23 - 24 - 25 - 27 - 28 - 29 - 30 - 31 - 32 - 34 - 36 - 38 - 40 - 42 - 44 - 46 - 48 - 50 - 52 - 54 TELECOM INDUSTRY OVERVIEW RECENT UPDATES ALL ABOUT TELECOM INDUSTRY SEGMENTS GOVERNMENT REGULATIONS ALL ABOUT ‘3RD GENERATION TECHNOLOGY (3G)’ FUTURE OF INDIAN TELECOM INDUSTRY ANALYSIS OF TELECOM SECTOR A) PORTER'S FIVE FORCES MODEL B) SWOT ANALYSIS & KEY TAKEAWAYS WHAT’S ROAD AHEAD FMCG INDUSTRY OVERVIEW INDUSTRY CATEGORY AND PRODUCTS GROWTH PROSPECT GOVERNMENT INITATIVE MARKET OPPORTUNITIES ANALYSIS OF FMCG SECTOR A) PORTER'S FIVE FORCES MODEL B) SWOT ANALYSIS & KEY TAKEAWAYS COMPANIES BHARTI AIRTEL LIMITED RELIANCE COMMUNICATION HDFC BANK STATE BANK OF INDIA UNION BANK OF INDIA AXIS BANK LIMITED PUNJAB NATIONAL BANK HINDUSTAN...
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...ETHICS 101 A COMMON ETHICS LANGUAGE FOR DIALOGUE Compiled by the Ethics Across the Curricula Committee DePaul University Institute for Business & Professional Ethics 1 E. Jackson Blvd, Ste 7000 Chicago, IL 60604 http://commerce.depaul.edu/ethics bf 208592 ETHICS 101 A COMMON ETHICS LANGUAGE FOR DIALOGUE Compiled by the Ethics Across the Curricula Committee ©2007 IBPE. All Rights Reserved Chaired by Patricia Werhane, Director, Institute for Business & Professional Ethics, DePaul University. A subcommittee of the Ethics Across the Curricula Committee created this document. The members include: Andrew Gold, Professor, College of Law; Laura Hartman, AVP & Professor of Business Ethics, Department of Management; Karyn Holm, Professor, Department of Nursing; Scott Paeth, Asst. Professor, Religious Studies Department; Charles Strain, Associate Vice President of Academic Affairs; Marco Tavanti, Asst. Professor, Public Services Graduate Program; David Wellman, Asst. Professor, Religious Studies Department. This guide draws from various resources prepared by others including copyrighted materials reprinted with the permission of the Markkula Center for a Applied Ethics at Santa Clara University (www.scu.edu/ethics), from Larry Hinman, Ethics: A Pluralistic Approach to Moral Theory, 3rd edition (Belmont CA: Thomson Learning, 2003), from Marco Tavanti, “Thinking Ethically” (unpublished), David Ozar, “A Model for Ethical Decision-Making.” (unpublished)...
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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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...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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...1: a. Ensured benefits to both the parties: She ensured that both the parties who approached her are getting benefitted with the collaboration. Networking should be a win-win situation for all: She was careful in exploiting her network. b. Criteria To network was based on Performance and she consistently maintained that position. c. She carefully controlled the frequency of her interactions with the contacts that were more busy. d. Would follow up with connections. e. Good at evaluating people. Computing the future value of relations: Connect with f. Always reply to everyone h. Connect with people who are interesting & smart instead of powerful people 2. The challenges she faced at T/maker made her realize the importance of networking to succeed. Realizing that T-maker needed to find creative, cost effective means of generating consumer demand, Heidi began an aggressive campaign to build awareness of the company and its product. Leveraging her outgoing personality and fuel her desire to meet interesting people she began to consciously start networking. Heidi’s natural style was to maintain deep personal relationships with every person she meets. It was the paucity of time that forced her to change her natural approach and adopt a different method. She started to maintain close relationships with people who were nuclei of their own networks. This allowed her to maintain a...
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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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...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 Solution Discussion Sampa Video Case This case is useful for illustrating how we do NPV analysis when cash flows are risky, illustrating the idea of a terminal value, and also for thinking about what kinds of advantages make for positive NPV projects. The case discusses Sampa Video, the second largest chain of video rental stores in the greater Boston area, and their consideration of an expansion into an online market. What we have to do is evaluate the decision. Sampa Video – History Sampa began as a small store in Harvard Square catering mostly to students. The company expanded quickly, largely due to its reputation for customer service and its extensive selection of foreign and independent films. In March of 2001 Sampa was considering entering into the business of home delivery of videos. This follows on the heals of rumors of similar considerations by Blockbuster and the appearance of internet based competitors (Kramer.com and CityRetrieve.com). Expectations The project was expected to increase its annual revenue growth rate from 5% to 10% a year over the next 5 years. Subsequent to this, the free cash flow from the home delivery unit was expected to grow at the same 5% rate that was typical of the video rental industry as a whole. Up-front investment required for delivery vehicles, developing the necessary website, and marketing efforts were expected to run $1.5 M. Projections – Incremental Cash Flows (thousands of $) Sales EBITD Depr. EBIT Tax...
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...Cohesion in the Translated Novels of Naguib Mahfouz: the Evidence from The Thief and the Dogs. By Ahmed-Sokarno Abdel-Hafiz South Valley University Abstract The paper aims at examining how lexical cohesion is achieved in Naguib Mahfouz’s novel The Thief and The Dogs and how the translators have dealt with this device in the translated version. The paper compares lexical cohesive devices in this novel and in its English version. It is also an attempt to test two hypotheses that account for the degree of explicitness in the translated text as compared to the source text: the Explicitation Hypothesis and the Stylistic Preference Hypothesis. Both Aziz (1998) and Obeidat (1998) adopt the Stylistic Preference Hypothesis which attributes explicitness or implicitness to Stylistic preference of the target language. The Explicitation Hypothesis is shown to offer a more appropriate explanation for the way lexical cohesion is rendered in the target language. 0. Introduction Cohesion is defined “as the set of possibilities that exist in the language for making text hang together: the potential that the speaker...
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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 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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