Pinson Media has been working on advanced media tracking technology, which will be available for commercialization in

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Question:

Pinson Media has been working on advanced media tracking technology, which will be available for commercialization in a short period. If they don’t invest in the project, they expect to grow at a 4 percent rate in perpetuity, starting from year-end T1 forward. Their forecast of next year’s revenues are $11.25 million; operating expenses are forecast at 75% of revenues. If the invest in a new product line, they anticipate the first after tax cash flow from the technology to be $3.75 million, received one year from today. Market demand is expected to result in cash flow growth at a 30% rate for two years after that. Thereafter, competitive pressures are expected to reduce long run growth to 5 percent growth, in perpetuity. Pinson Media expects to invest $55.75 million in the venture immediately to secure these future cash flows. Pinson Media has a YTM on its debt of 6.5%; the company beta is 1.40; newer firms in the industry have betas of 1.80. Market conditions are such that the risk free rate is 3.5% and the market risk premium is 5.0%. The company has $15 million in debt and a market value of equity of $85million. It has 3.0 million shares outstanding and faces a tax rate of 25%. Show all steps and inputs to your final answer.

a. What is the discount rate Pinson should be using for the project?

b. Value per Share of Pinson, without the investment

c. What is the value of the Project as a stand-alone project?

d. What is Pinson's value per share if it takes on the project?