Analysis of Parenting Magazine
Autor: Bosoro Babatunde • February 5, 2018 • Case Study • 1,802 Words (8 Pages) • 1,951 Views
Parenting Magazine
Introduction
Robin Wolaner is an entrepreneur who has been working on an incredible idea about launching a new magazine company called Parenting. The time is set in 1986 and after about a year of hard work, Wolaner realized that the business is cash strapped and would need about $ 5milion dollar in investments for it to continue to be a going concern otherwise, they might just as well be done and out. However, finding investors willing to commit the much needed finance the business required was particularly difficult and when she finally does, she also realizes that negotiating the term of the deal with the new potential investor (Time) was near impossible as finding the ideal contractual terms that appealed to both parties had been the real bone of contention. To Robin Wolaner, finding cash to stay afloat to continue to build her business was her top priority but she also was thinking about how much of her stakes in the business she has to give up as result of the deal, and if this would happen at what she considers a fair price.
Calculating the Free Cash Flow of the Firm
Assumption:
Tax rate = 45%
Terminal Growth rate = 10% (Annual inflation rate for postage)
WACC = Re , because Parenting is an unlevered firm.
Risk free rate = 7.45%
Risk premium = 6.0%
P/E = Market Capitalization / Net Income
e = Weighted Avg. * D/E
Company (1985) Debt Equity Market Cap. D/E
Meredith Corp 0.39 $58.50 $498.53 $557.03 0.12
Plenum Publishing 0.21 $0.12 $118.45 $118.57 0.00
Standex International Corp 0.48 $26.94 $211.31 $238.25 0.13
Weighted Avg. 0.39
Weighted Avg. D/E 0.10
e 0.43
Re = [Rf + *(Risk premium)] = WACC = 7.45% + (0.43* 6.0%) = 10.04%
DCF =∑ FCF/(1+WACC)^n
Terminal Value = FCFn *(1+g)/(WACC - g)
Year 1986 1987 1988 1989 1990 1991 1992
EBIT (2,172,662) (2,869,493) (929,490) 696,398 3,196,369 6,281,691
EBIT * (1-t) (2,172,662) (2,869,493) (929,490) 383,019 1,758,003 3,454,930
FCF (2,172,662) (2,869,493) (929,490) 383,019 1,758,003 3,454,930 3,800,423
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