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Question 1
Determine the DCF value of Nantucket Nectars as at the end of 1996.
Justify the discount rate used in the valuation from the range of 12% 18%.
Discou
nt Rate
12%
14%
16%
18%
Firm Value
Terminal Value
4%
6%
72,1
93,2
30
10
54,63
66,2
8
14
43,1
50,26
91
6
35,1
39,8
79
18
8%
135,3
70
85,5
09
60,8
79
46,3
14
represents the band of equity return in the US market during that period
considering that Nantucket Nectars was unlevered at the time of the
valuation.
Question 2
Should the founders cash out at this time by selling the company?
The Criteria for the founders are as below.
i.
ii.
iii.
iv.
v.
vi.
The options available to the founders are as below along with the pros &
cons of each option.
IPO
Pros
Instant Capital Funding
Managers remain in control
Brand awareness increases
Retain control over employment
Cons
Managers have to report to shareholders
Risk losing culture through focus on short
term goals
Additional legal regulations and constraints
Sell Company
the company while enabling them control over employment and company
culture.
Question 3
Advise on the possible sale strategy giving due consideration to all the
facts of the case.
The sale strategy available to the founders includes:
i.
ii.
iii.
A Public Bidding
This is probably the best way to determine the market value of
the firm and will possibly lead to the highest possible price. This
also helps to increase the brand awareness of the firm adopting
this strategy will most likely lead to the loss of the brand equity.
Secret Bidding
This is unlikely to lead to the highest price attainable but the
founders might be able to negotiate beneficial terms for
employees while also staying out of the public space giving
customers the impression the firm is still independent.
Presenting to Individual Buyers
Selling price would most likely be lower than market value but
the firm should be able to keep its corporate culture while the
management will ensure employees keep jobs.
I believe the founders should present the firm to individual buyers if they
decide to sell. Although this strategy is unlikely to generate the highest
possible sale value, it gives the owners some negotiating leverage that
may help keep the company on the track of the vision they have for it.