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INTERCO Case Study Memo (due start of class 9/27/2011)
1.
What was Interco like in August 1988 (products produced, size, etc.)?
2.
What are Interco’s goals in August 1988 and how does it plan to achieve
them?
What actions had Interco already taken prior to August 1988?
3.
Assume the forecasted cash flows over the next ten years for Interco (given to
you on the next page) are correct.
Also assume that the terminal value of Interco
at the end of year ten is estimated to be 14 times its year ten cash flow of $339
million (the 14 was obtained based on stock price multiples of competitors).
a. What is the fair price per share of Interco stock assuming a discount rate
of 10% is used based on these forecasts?
What if the discount rate is
14%?
b. What fraction of Interco’s estimated total firm value represents the terminal
value of Interco, and what fraction of the total firm value represents the
present value of the expected cash flows over the next ten years.
Do this
calculation assuming a discount rate of 10% and then assuming a
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This note was uploaded on 01/02/2012 for the course FINANCE 347 taught by Professor Bayou during the Fall '11 term at NYU.
 Fall '11
 Bayou
 Finance

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