Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (9) | Ignore Thread Prev | Next
Author: Nateol Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 197  
Subject: Re: Acquisitions Gone Bad Date: 6/7/2001 4:01 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
"How much do your calculations change if you do not assume perpetual growth, but instead assume grwoth of X% for 10 years (for example), followed by perpetual growth at a lower rate (say 5% or 3%)?"

I was actually asking about the hobbit/habit relationship! But to address your new questions (thank goodness I saved the spreadsheet this time!):

In the situation where the unidentified $1,000,000 (on top of I-Banker and Attorney fees) in saves were realized pronto, the perpetual growth rate was less than 5%. Since I enjoy cooking up numbers and you left me with little in terms of specifics, I cooked up the following scenarios. In all examples, I'm using a 13% discount rate per annum and I'm discounting by half-year, assuming the cash comes in over the course of the year (which may not be valid in a spot-on analysis with the cash lagging on accrued revenue). In all scenarios, I solved to realize a present value of $68,000,000.

Scenario 1

Other than the I-banker and Legal Fees, there are no synergies. Cash Flow at time .5 = $3.5 mil and at time 1.5 = $4.7 mil.

3% Perpetuity: Cash flow from years 2-10 must grow at 10% to break even.
4% Perpetuity: Cash flow from years 2-10 must grow at 9% to break even.
5% Perpetuity: Cash flow from years 2-10 must grow at 8% to break even.

Scenario 2

Other than the I-banker and Legal Fees, there are incremental synergies totaling $1 mil. Cash Flow at time .5 = $3.5 mil and at time1.5 = $5.7 mil.

3% Perpetuity: Cash flow from years 2-10 must grow at 7% to break even.
4% Perpetuity: Cash flow from years 2-10 must grow at 6% to break even.
5% Perpetuity: Cash flow from years 2-10 must grow at 5% to break even.

Hopefully that effectively demonstrates the change. I'm more inclined to say scenario 2 should be closer to realistic expectation levels.

Incidentally, did you follow what I meant by nominal versus real? I simply meant that inflation will account for 3% reported growth (assuming constant margins). If that's the case, the 3% growth scenario assumes that there is zero real expansion.

Cheers,


Nate
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (9) | Ignore Thread Prev | Next

Announcements

Post of the Day:
Value Hounds

Medallion Financial: TAXI!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement