Iridium Llc

Strategic Finance Management Project

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Iridium LLC

Submitted to

Prof. S. Kuntluru

Prepared By

GROUP 7

Ajinkya Parab (20% contribution)

Azeera Aziz (20% contribution)

Keerthi Sindhuri (20% contribution)

Shachi Tayal (20% contribution)

Shraddha Jose (20% contribution)

1.      Assuming the market was rational at the time (i.e. market prices reflect fundamental values), how much was Iridium worth on a per share basis at the end of 1998 according to the projections in Exhibit 5? What are the important determinants of value? How confident are you in your answer? (Please assume the market risk premium equals 7.5%.)

  |Year |1998 |1999 |2000 |2001 |2002 |2003 |2004 |2005 |2006 |2007 | | |A |Interest expense |265 |387 |454 |424 |278 |59 |0 |0 |39 |92 | | |B |Net Income |-1253 |-1549 |-81 |996 |1911 |2948 |3284 |3468 |3590 |3658 | | |C |Dep Expense |552 |811 |966 |1213 |1333 |1084 |1109 |1020 |822 |605 | | |D |Inc in NWC |-398 |290 |63 |-102 |-81 |-54 |-28 |-12 |-4 |-1 | | |E |Cap Expenditure |716 |927 |1349 |1246 |1258 |1274 |385 |391 |413 |844 | | | =A+B+C-D-E |Cash Flows |-754 |-1568 |-73 |1489 |2345 |2871 |4036 |4109 |4042 |3512 | | |  |PV of Cash flows |-754 |-1369.85 |-55.7157 |992.8338 |1366.004 |1461.065 |1794.382 |1595.979 |1371.559 |1041.118 |7443.375 | | 

 Discount rate = 5.09 + 1.25*7.5 = 14.65%

NPV of all cash flows = $ 7443. 375

Approximate PV of terminal value from Exhibit 4b - $ 8000

Company Value = PV of Terminal value + PV of Cash Flows

= $15443.375

No. of outstanding shares = 141.17 Mn

Per share worth = $ 109.39

Most important determinants of Value are

- Cost of Equity

- Interest rate

- Capital Cash Flows

2.      Conduct sensitivity analysis on the valuation. Why is Iridium potentially worth so much?

3.      What caused Iridium to fail: was it a bad strategy, bad execution, or bad luck?

a)  Bad Strategy:

• Overpriced phones; $3 - $ 7.5 per...