Arcadian Case Essay

364 Words2 Pages
Arcadian Case 1. Chu thinks that the stock price is primarily affected by terminal value. It isn’t determined by the present value of five-year dividends. In the exhibit you can determine that dividends is a small part of the market price of a stock. The exhibit shows the percentage of market price not attributed to dividends (Average 93%). 2. There are numerous ways to calculate terminal value. We could use book value if we wanted to determine the minimum value of a company, however it does ignore some liabilities and assets, which may cause problems, down the road. Replacement value can be used if a company is deciding to purchase another company or build one up from scratch. The estimates are predicted and a true value may be hard to determine. If a firm has marketable assets, liquidation value may be used. This method does come with an uncertainty about the value of these assets in the market. Multiples method is another approach you could use. It’s used as a business evaluation benchmark. It’s simple to use, but it inly provides relative value and not actual value. If the firm has consistent cash flows, you may want to use the discounted cash flow method. It gives us the time value of money but simple errors in both the growth rate and discount rate can alter the true value. 3. I would estimate that the terminal value of the toll road investment at year 4, the bottling plant at year 14 and the film studio at year 28. Once growth has reached its maturity, perpetuity growth should shift into focus. The high growth phase of the firm should have already been achieved. 4. (Attached Excel Sheet) TV=cash flow*(1+G)/WACC-g 5. I think Terminal Value is really important when considering when you’re doing a valuation of a company. It provides a frame of reference of what the firm’s future cash flows (their present value) will look like at a future

More about Arcadian Case Essay

Open Document