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

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
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 debt because it has an Equity Beta of 1.0, which means that it is no riskier than the market as a whole. That, along
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern