Valuation Case
Instructions
Project should include the executive summary, the case write-up, and formatted and relevant spreadsheets (8-page max). The Excel workbook should be your own and not just provide back to me the case spreadsheets (format and keep what is relevant and provide “pretty” worksheets of your calculations). Use Sun Micro systems case to complete below
- Perform a stand-alone valuation (i.e. no synergies) and a valuation for Acquisition (i.e. using the synergies and associated costs). The Synergistic valuation will be the valuation that you use for the recommendation.
- Use a tax rate of 35%
- Use an MRP of 6.0%
- Constant growth/steady-state is not obvious within the case. Come up with a justifiable long-term growth number. GDP growth forecasts would be a “ceiling” on growth. The 10-year treasury is sometimes used, inflation forecasts (2% to 2.5%), or a rate between inflation up to 5% could be used as well. Just be able to justify your position.
- Make sure to give only one opinion, but feel free to discuss alternative valuations that were considered but not recommended.
- Hint: since this is for acquisition, you may want to look at the WACC for the true comparable rather than just the WACC of Sun and/or also consider a “re-levered beta”.
- Hint: A lot of the work is done for you in this case including Net PPE (i.e. Fixed Assets). Use the percent of sales technique (2009 NWC/2009 Revenue) to forecast Net Working Capital.
Let the numbers tell the story. Look at the forecasted years’ (2010-2014) EBIT (Operating Income).
What to (at least) include in the case write-up:
- The assignment
- Relevant history of Oracle, Sun, and the prospective merger
- Cost of Capital
- Valuation
- Assumptions with justification
- Recommendation
