Broadwalk Acquisition

BOARDWALK ACQUISITION

Muni Xu

10-19-10

1. What are the projected earnings and free cash flow for NanoThin over the next 2 years

Based on the fact that

a) Zero growth in free cash flows after 2007.

b) NanoThin also projected that future annual depreciation and amortization expense would be approximately equal to future annual capital expenditure.

We can calculate that the Free Cash Flow = Cash Flow from Operations – Capital Expenditures

i. $3,726 - $2,300 = $1,426

EBIDA= Net Income + Depreciation+ amortization

I used the average gross profit percent of Projected 2005, 2006, and 2007, which is 48% as the gross profit percent to project the next two years. Then I also averaged the operating expenses including both R&D and SG&A for year 2005, 2006 2007 to project 2008 and 2009. As EBIDA= Net Income + Depreciation+ amortization, I added back depreciation and amortization back to net income to come up to the final EBIDA as to project the cash flow.

2. Benchmark NanoThin’s financial performance against the sample of actual private company sales. Choose valuation multipliers and cost of capital for valuing NanoThin.

I chose multiplier of 8, which is the most multiplier for valuing this industry. WACC as indicated in the case book is 18.91%. Significant benchmarks include Net sales, 23.176, Market value of invested capital(MVIC), 16.9,operating cash flow,242(since the first two years of cash flow were negative), EBIT, -6758 and net income -714. Most of the benchmarks show the Nanothin performed in a good shape especially the Net sales and market value of invested capital. The net sales should actually be even higher given that I was using the operating income without adding depreciation and amortization to calculate it.

3. What purchase price would you recommend for NTC? Be sure to defend your assumptions used in your financial analysis and justify your choice of a multiple method or the free cash flow method of...