What is the fair value of Yahoo!’s core (US) business at the end of June 2013? Please perform a baseline discounted free cash flow valuation of Yahoo!’s core business. In doing so, please assume the following to be true:

New management brings sales back to growth in the second half of 2013, with a 0.5% growth rate over the second half of 2012. The growth rate of sales sees a 5% decline in revenue between 2014 and 2017.

The reduction in TAC (traffic acquisition cost) reached through the deal with Microsoft is permanent and, as a result, COGS going forward remains at its 2012 level as a percent of sales.

SG&A, R&D Expense, and Amortization of Goodwill and Intangibles all stay at their average historical level as a percent of sales.

All cash and short-term investments in Yahoo!’s balance sheets are excess cash. In addition to cash, NWC excludes Other Current Assets, Other Current Liabilities, and Short-Term Borrowings, and stays at -4.5% of sales (in line with the most recent data).

Depreciation and CapEx are roughly equal, offsetting each other.

Yahoo! Is subject to a 35% corporate income tax rate.

Answer rating: 100% (QA)

ANSWER The reduction in TAC traffic acquisition cost reached through the deal with Microsoft is permanent and as a result COGS going forward remains a... View the full answer