Premium Essay

Waltham

In: Business and Management

Submitted By jasserj
Words 930
Pages 4
Introduction
Waltham, Inc. is a publicly traded firm that is considering the acquisition of a private firm, Artforever.com. The acquisition is being considered because there are limited investment opportunities in the core business of vintage shoe restoration at Waltham, Inc. The CEO wishes to expand the company into other growing markets. Waltham, Inc. currently has 100,000 outstanding shares of stock trading at $50 per share. The firm also has $2M market value of bonds trading at a yield to maturity of 6.2%.
The sales revenue of Artforever.com is represented in Table 1, Exhibit A. In addition to its sales revenues, Artforever.com currently has $1.475M in long-term debt. Since Artforever.com is a privately held firm, the analysis of the value will be completed utilizing a comparable publicly traded firm, Arttoday.net.
The purpose of this paper is to analyze the value of Artforever.com and evaluate the potential acquisition. A review of the future cash flows will be completed and utilizing comparable analysis, the beta will be calculated. Based on these calculations, a weighted average cost of capital will be determined and utilized to calculate the value of Artforever.com.

Analysis
Prior to determining the value of Artforever.com, an appropriate discount rate needs to be calculated. Since Artforever.com is a privately held company, there is little information available to determine the appropriate cost of capital and rate of equity. Thus, a comparable analysis was done utilizing a similar publicly traded company, Arttoday.net. Since Arttoday.net and Artforever.com operate in the same industry, this comparable analysis will provide the information necessary to extrapolate a reasonable estimate of the cost of capital and rate of equity.
Arttoday.net has a beta 1.50 and a debt to equity ratio of 0.75. The beta reported is based on the complete capital...

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