AppleiTVPres - Apple iTV The Analysis Aswath Damodaran...

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Aswath Damodaran 1 Apple iTV: The Analysis Aswath Damodaran Stern School of Business
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Aswath Damodaran 2 Executive Summary On a stand-alone basis, this project is a good project (but barely) The average return on capital, even under the more conservative finite life assumption, is 26.91%, which is higher than the cost of capital of 10.47%. The net present value of this project, using a cost of capital of 10.47% is $ 138 million, under the finite life assumption of a of 10 years is $ 473 million, under the assumption of an infinite life. Choosing an intermediate life gives you numbers between $138 and $473 million. On the two variables that are the most critical - market share and operating margin - the firm has a reasonable margin for error on market share and a narrower margin for error on operating margins. If we consider the potential project synergies (i.e. the gains in sales on other products sold by Apple), it will make this project a more attractive one.
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Aswath Damodaran 3 Cost of Capital: Apple iTV Debt to Equity ratio for Apple Market Value of Equity = $ 90* 900 mil = $ 81,000 million Market Value of Interest bearing Debt = $ 0 PV of Operating lease commitments = $3.368 billion Market Value D/E Ratio = 4.16%; MV Debt/Capital Ratio = 3.99% Unlevered Beta for Electronics Business Average Beta of Electronics firms = 1.19 Aggregate D/E Ratio of Electronics firms = 14.41% Unlevered Beta = 1.19/(1+ (1-.4) (.1441)) = 1.09 Aggregate Cash/Firm Value for Electronics firms = 13.60% Unlevered Beta corrected for cash = 1.09/ (1- .136) = 1.2647
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