Premium Essay

Market Cards

In: Business and Management

Submitted By lauantreo
Words 281
Pages 2
Vh1 is a channel that belongs to the chain MTV Networks and from time ago it has been developing a reality show called “Surreal Life”. In this show, diverse prominent figures from the media are joined in order to live in the same house for 12 days.
The producers have interest to enter to the Latin-American market and even more on the Ecuadorian market, since they suppose that the multiple fights among the players will attract the public television viewer.
Nevertheless there is the possibility of doing a “Surreal Life” which according to the analysts throws a Present Value of US$ 300 billions (of dollars). It is necessary to notice the sources of revenues in this type of programs are multiple: advertising material, dolls, T-shirts, and so on.
You are being asked to evaluate the project of “Surreal Life” in Ecuador using the methods of APV and WACC. Please consider the following information:
 The marginal tax rate is 30%
 The unlevered cost of equity is 20% constant per year.
 Due to the necessary investment, we must have to ask for debt at the Sucre
Reloaded Bank for $ 120 millions of dollars. This Bank has established that $ 9 millions of dollars must be repaid from years 2 to 4, then the debt level will increase in 7%.
 The cost of debt for the three first years is 12% and then it drops to 9%
 From the fourth year, the Free Cash Flow will grow at a constant rate of 7%
 Next, you are given the Project Free Cash Flows in thousands of $ dollars:
Year 0 1 2 3 4
FCF -15 000 17 200 20 110 23 490 25…...

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