Nabr Case Paper

Group Assignment:

NABR Publishing Ltd. Valuation Case

Submitted by:

Shawn S. Chavarria

Keisha N. Garbutt

Mario Caliz

MBA 680-Corporate Financial Theory

Galen University

October 22, 2014

Valuation Methodology

The valuation of NABR Publishing Ltd encompassed an extensive amount of exercise, and the valuation required taking into consideration various factors. The Discounted Cash Flow (DCF) method was used to value the NABR Firm. The DCF Method utilizes the net present value of future free cash flow projections and discounts the cash flow at a discount rate which was calculated using two of three options. In turn, this was done using the Weighted Average Cost of Capital (WACC). The motive for using WACC to get the discount rate is to attain excellent results. WACC’s utilization is viewed as a more ideal structure when the values attained reflects more than the Current Cost of Investment. The sum total of all the discounted cash flows are referred to as the Value of the firm.

Mr. Hawks requested that a valuation be done; hence, the group focused on the DCF model contemplating three assumptions: no debt, debt and equity, and using the Venture Capitalist method which utilizes the P/E ratio. He will notice the firm value that his company is reflecting as a much lower equity value when no debt is associated with the firm. Yet, when adding the debt to the valuation, it reflected a much higher equity value. The reason for this is because upon assuming debt it is greater than the nonexistence of debt. This is so because the firm benefits from a Tax Shield based on the Corporate Tax Rate. Since interest has to be paid on the debt, taxes for firms are typically deductible. The valuation considerably depends upon the infusion of the debt into the capital structure. The valuation of NABR, considering an all equity firm which is having no debt in the capital structure, results in the WACC...