Explore BrainMass
Share

Valuation - NPV

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Question 1
Silver Lake Partners is well-known for its other investments. For example, on January 3, 2011 Silver Lake Partners invested (together with other entities) $946 million in Series G preferred shares of Groupon priced at $31.59 per share. According to the Groupon prospectus, on October 31, 2011 each share of Series G preferred stock was converted into four shares of Class A common stock. On November 9, 2011 Silver Lake Partners sold some of these shares at the IPO price. What was Silver Lake Partners annualized return on this investment? You may assume investment date to be exactly 10 months earlier, or use the XIRR function. What is Silver Lake Partners annualized return for remaining shares if it sells them on April 9, 2013? Groupon did not pay any dividends since IPO.
See attached excel template

Question 2
Silver Lake Partners is located in Menlo Park, California. The following information is for pedagogical purposes only and unlike earlier questions does not deal with real situation. There are rumors that if Silver Lake Partners acquires Dell Inc., it will move its headquarters to Menlo Park. Recently Silver Lake Partners has entered into a Lease Agreement (the "Lease") with Sequoia LLC (the "Landlord") to lease office buildings (the "Premises"). Because the Premises are not yet under construction, Dell Inc. will not be obligated to pay rent until three months after the Landlord makes the Premises available to Dell Inc. (the "Delivery Date"). The Delivery Date is estimated to be July 2014, and Dell Inc. anticipates that the Lease term and its rental obligations will initiate in October 2014. The 12-year Lease will expire in September 2026. Under the Lease, rent will be paid on a monthly basis at $1.8 million per month. The Landlord is negotiating with several contractors to build the property. Contractor 1 bids $60 million and can start work immediately to finish it by July 2014. Contractor 2 cannot bid right now, because of another ongoing project. In three months Contractor 2 will know for sure whether it can bid or not. If it bids, the bid will be $ 40 million. However, if Contractor 2 does not bid, the Landlord will have to hire Contractor 1, thus losing 3 months (the rent payments will start in January 2015, but the lease will still expire in September 2026). There is a 60% risk-adjusted probability that Contractor 2 will formally bid. The annual risk-free rate is 2.4%. What is the value of option to delay? What should the Landlord do?
See attached excel templet

© BrainMass Inc. brainmass.com October 17, 2018, 11:24 am ad1c9bdddf
https://brainmass.com/business/real-options-valuation/valuation-npv-537669

Attachments

Solution Preview

See the attached file. Thanks
Contractor 2 savings NPV 3
3 months ...

Solution Summary

The valuations of NPV are determined. The remaining shares if it sells them for Groupon is determined.

$2.19
Similar Posting

Debt, Valuation, Net Present Value

Use the following information for questions 1 through 4

Rollins Corporation is estimating its WACC. It's current and target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon rate, paid semiannually, a current maturity of 20 years, and sell for $1,040. The firm could sell, at par, $100 preferred stock which pays a $12.00 annual preferred dividend. Rollins' common stock beta is 1.2, and the risk-free rate is 10 percent. Rollins is a constant-growth firm which just paid a dividend of $2.00. Its stock sells for $27.00 per share, and has a growth rate of 3 percent. The floatation cost is 5% for debt, 10% for preferred stock, and 25% for common stock. The firm's marginal tax rate is 40 percent.

Question 1
Part a. Calculate the cost of existing debt.
Part b. Calculate the cost of new debt.

Question 2
Part a. Calculate the cost of existing preferred stock.
Part b. Calculate the cost of new preferred stock.

Question 3
Part a. Calculate the cost of existing common stock.
Part b. Calculate the cost of new common stock.

Question 4
Part a. Calculate the weighted average cost of capital (WACC) for existing capital
Part b. Calculate the weighted average cost of capital (WACC) for new capital

Question 5
Given that the company's required return (WACC) is 10%, rank the two following projects:
Use only one best method to rank the projects

Project A B
Project life 12 years 12 years
Initial investment $1,200,000 $1,500,000
Annual operating cash flows $180,000 $225,000

Question 6
Foley Systems is considering a new investment whose data are shown below. The equipment would be depreciated using the MCRS system basis over the project's 4-year life, would have a zero salvage value, and would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV?

NOTE: The depreciation system used in the US is MACRS which stands for Modified Accelerated Cost Recovery System. Some people refer to it as accelerated to distinguish it from the straight line depreciation.

The accelerated rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4.

WACC 10.0%
Net initial investment in fixed assets $75,000
Required new working capital $15,000
Sales revenues, each year $75,000
Operating costs (excluding depreciation), each year $25,000
Tax rate 35.0%

View Full Posting Details