Valuation of Yahoo!
This exam requires you, among other things, to estimate the stock price for Yahoo!(Ticker: YHOO), and provide the analysis as requested. You will need to use "Sources of Financial Data" listed in Course Content in the Course Resources module to obtain the necessary financial info/statements for Yahoo!, to identify its peer companies and to obtain pricing and financial information for them.
A. Choose several peer companies for Yahoo! and justify your choice. Choose several valuation multiples and using comparable ratios of peer companies (as we did in Project 2 and discussed in Conferences) and Yahoo! financial information from prospectus, estimate the company's equity value on July 22, 2016. It is required for this question to list your major assumptions and properly reference sources of information that you used in your calculations.
B. Using the same peers and industry data, please estimate Yahoo!WACC. Show all your data used for calculations. Again, please state all your assumptions and sources of information.
C. On July 25, 2016Verizon(Ticker: VZ) announced its intent to buy Yahoo!How do your valuations compare to the Verizon's announced acquisition price? If your valuations differ from observed prices, can you briefly forward any possible explanations? For example, you should discuss and attempt to evaluate possible synergy and other effects of acquisition.
D. The following information is for pedagogical purposes only and unlike earlier questions does not deal with real terms of the deal.In July 2016Virgin Americaand ViaSat(Ticker: VSAT) announced a Joint Venture (JV)to provide Wi-Fi service on-board. ViaSat has invested $
5 M in the venture in return for 10% ownership in the form of convertible preferred shares. By July 2017JVis expected to generate $ 5 Min revenues with subsequent 25%annual growth. ViaSat anticipates to sell its share in JVin July 2020. Applying Value/Sales ratio of 16, what is the estimated 2020 value of ViaSat share in JV? What is the ViaSat''s implied cost of capital that justified the $ 5 M investment? How would your answers change if the annual growth were only 20%? What is the advantage of having convertible preferred instead of common equity?
E. The following information is for pedagogical purposes only and unlike earlier questions does not deal with real situation. Menlo Ventures provided funding for DriveUMUC start-up by investing convertible preferred shares. DriveUMUC expects to go public in 5 years, at which time it expects to have a post IPO valuation of $ 5 Billion. Until the company goes public, preferred shares will pay 8% annual dividend.
a. What % of post IPO equity should VC's shares to be converted in to provide VC its expected return?
b. Assume that the percentage ownership agreement remains the same as in part a. What actual return VC gets, if the IPO value is $ 15 billion? 2 Billion? What if instead of an IPO, the company is acquired at $ 500 Million in 5 years? Remember that Menlo Ventures have convertible preferred shares.
Make sure to justify your responses by using the available data/info and carrying out any needed and relevant calculations.
Attachment:- final-summer-template.xlsx