new report

new report - Conclusions Paramount as stand alone - PV with...

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Conclusions Paramount as stand alone - PV with WACC = $13,267.31 - PV with APV = $13,942.78 - For further Paramount values see Exhibit A Viacom as stand alone - PV with WACC = $37,710.31 - PV with APV = $19,541 - For further Viacom values see Exhibit B Paramount/Viacom Merger - PV with WACC = $35,151.55 - PV with APV = $33,841.07 - Average Synergy = $1350.26 - For further Paramount/Viacom values see Exhibit C QVC as stand alone - PV with WACC = $3,791.11 - PV with APV = $2,785.59 - Barry Diller must increase Paramount’s growth by a rate of .29% so that the new value of Paramount is equal to the old value of Paramount plus synergy of Viacom - .29% found by increasing growth of FCFs to match added value to Paramount to synergies of merger with Viacom - For further QVC values see Exhibit D Difference with Smith Barney Valuation Using EBITDA(multiplier)=perpetual value with growth, we found that Smith Barney assumes growth rate of terminal value between 6.99% and 9.31%. Our terminal value growth rate of 7.35% falls within this range. However, our present value is that of the levered firm. If we subtract the present value of our tax shield from the present value of the levered firm using APV, we arrive at a value of $10,161 which is within the range of the table in Exhibit 14. Using our assumptions of Risk free rate=.0625 and a Market Risk Premium=.045, it is possible to derive Smith Barney's Beta of Assets by applying the CAPM formula. This created a range of Betas of .833-1.28. Our Beta of Asset, shown in exhibit C is .8965. This is in line with our previous comparisons that our WACC, Growth Rate, and Unlevered Value are within the range of the Smith Barney Valuation. Paramount Assumptions In the valuation of Paramount, we first had to determine the free cash flows, based off of the information for each year in Exhibit 10. Considering that the 30-year Treasury bond is a generally accepted standard for the risk-free rate, we based our risk-free rate off of Exhibit 11. We also assumed a market risk premium to be 4.5% based on our class discussion that an appropriate market risk premium should be between 4% and 5%. The beta of equity for Paramount is found in Exhibit 11. Using those assumptions in combination with the CAPM equation, we found the return on equity for Paramount. The cost of debt of Paramount is 7.24%. It should be categorized as an “A” long term
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new report - Conclusions Paramount as stand alone - PV with...

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