Valuation of AirThread

The valuation of Air Thread is intended to present to it's potential acquirer, American Cable Communication (ACC) for consultation on decision of acquisition purpose. According to the case study, American Cable communications is a large and healthy cable operator which provides the services and products that related to internet, video and landline telephony. The demand of the ACC is high in America as for instance, there are around 48.5 million households installed the ACC cable , 24.1 million people who subscribe to ACC video, 13.2 million people who are currenly using ACC internet and 4.6 million landline telephone. According to James(2011), wireless is trending and is the future of communication and people
Therefore the APV methods is the most appropriate valuation to value Air Thread Connections but we need to calculate WACC for the valuation in APV. By assuming the Airthread obtaining fully in equity financing, we can calculate the WACC in order to discounted the intermediate free cash flow from year 2008 to year 2012. The total present value of Unlevered Cash Flows from 2008 to 2012 is $1255.3MM, excludes terminal value. The next steps is using the WACC to discount all the perpetual future cash flows and the terminal value of the perpetual future cash flows is $1540.1MM. The following step is to calculate the long term growth rate by using the new 20.6 percent 'reinvestment rate' times 16.4 percent 'return on capital' equals to 3.4 percent 'EBIT Growth rate'. After that we calculated that the PV of intermediate Tax shields is $284.8MM which mean the debt does not have a significant impact on AirTread's value. Next is to estimate the non-operating assets, based on the data given in AirThread Income Statement and assuming the investments on ATC is only apply in the wireless communication market. The value of AirThread Non-operating Assets is $1.730 B equals to $90million “Equity in earnings of Affiliates” * 19.22 “P/E Ratio” as it shows in the following:

Table 1:

After that we come into the final valuation is to calculate the operating FCFs with synergies and compare to the