Sonic Solutions develops digital media products, services, and technologies for consumers and content development professionals. In June
Question:
Required:
1. Comment on how the Free Cash Flow spreadsheet calculation compares with how accountants and auditors might compute free cash flow directly from the companys financial statements.
2. Compute the annual rate of growth in forecasted sales and free cash flow for each year (2010 through 2017). Comment on the relative rates of sales and free cash flow growth.
3. What role does the 12% weighted average cost of capital assumption play in the discounted cash flow valuation analysis?
4. Write a brief paragraph explaining to someone unfamiliar with present value calculations how the figure $155.19 for Present value 20102017 is computed.
5. Explain how the figure $460.43 for Present value beyond 2017 is computed.
6. Why does the analyst team subtract an amount for net debt in arriving at Equity value?
7. What share value estimate would the J.P. Morgan team have calculated if they had used an abnormal earnings value approach rather than a discounted cash flow approach and had developed forecasts of abnormal earnings and book values that were consistent with the cash flow forecast in the above worksheet? Why?
8. Sometimes analysts research reports contain inadvertent computational errors. What would the estimated value of Sonics stock have been if the J.P. Morgan team mistakenly used 34.60 million shares outstanding rather than the correct 51.69 million share count? Rovi Corporation announced on December 22, 2010, that it had agreed to acquire Sonic Solutions for a combination of cash and stock worth $14 per Sonic share. Sonic shareholders could choose between receiving $14 cash for each Sonic share they owned, or Rovi shares having a value of $14.
Here is a summary of the trading in Rovis stock in the days surrounding the announcement. What does this information suggest about how Rovi shareholders viewed thetransaction?
What is Discounted Cash Flows? Discounted Cash Flows is a valuation technique used by investors and financial experts for the purpose of interpreting the performance of an underlying assets or investment. It uses a discount rate that is most... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Free Cash Flow
Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a measure of profitability that excludes the...
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Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon