This is from the Radio One HBS Case Study for Finance.

Using data in the provided excel spreadsheet you are to do the following:

1. Estimate the cash flows for the potential new markets for the four years 2001 2004. You will do this using data in Exhibit 9 of the spreadsheet. BCF should be your starting point. This is basically revenue operating costs. You should assume additional corporate related costs of 2% of BCF. Look at footnote b on page 14 for depreciation. Dont forget the additional capital expenditure per radio station being acquired, and the additional depreciation on this expenditure. You will also need to estimate the investment in net working capital for each year.

2. Make an estimate regarding the long term growth of cash flows following 2004. You will assume that this is a perpetual growth rate.

3. Determine the cost of capital that should be used for valuing these cash flows. Data given in the case can be used to determine the risk-free rate and the asset beta. You should choose the value that you think is appropriate for the market risk premium.

4. Calculate a value for the acquisition. This should be your best estimate of the value of the acquisition. This value will consist of two pieces: PV of the CF for the first four years plus PV of the terminal value