CorpFin Final

Question 1

How do you derive the optimal capital structure?

Answer 1

1. Derive EV via MVE + ND
2. Derive EBITrwc
   - Derive worst case historical OPM%
   - Multiply that by current year’s revenue
3. Derive qualitative risk factor to derive max interest (1-3)
   - Dealer network
   - Buyer flexibility
   - Etc
4. EBITrwc/Qualititative Factor (1-3) = Max interest
5. Analyze various debt tranches with corresponding interest rates and Debt/Total Cap, divide Max Interest by interest rates listed until resulting debt/total cap equals the debt/total cap profile of the tranch used
6. Once that matches, use that debt amount

Question 2

What is the background of the case?

Answer 2

Microsoft put in a bid to acquire Yahoo for $31 per share. Our job was to determine whether or not we think Yahoo should accept the bid. We decided that by utilizing a DCF to value Yahoo using 3 different terminal multiple methods. The numbers I derived indicated that Yahoo should accept the bid because I thought $31/share was at a premium to what I thought it was worth.

Question 3

How did you project the financials?

Answer 3

Revenue set for % growth each year

Net PP&E and OWC as a % of revenues