Arcadian Microarray Technologies, Inc
Arcadian Microarray Technologies, Inc
Arcadian Microarray Technologies, Inc
MICROARRAY
TECHNOLOGIES, INC.
BLEMBA 28
SYNDICATE 1
AGENDA
1. Background and history
2. Sierra Capital Partners and RODNEY CHU’S COMPARISON ACTIVITY
3. The doubt of Rodney chu, lead on identification in financial report
4. RODNEY CHU’S COMPARISON ACTIVITY
5. The Idea of Terminal Value
6. taxes in terminal values
7. Liquidation vs. Going Concern Values
Question 1
Question 2
Question 3
Question 4
Question 5
1. BACKGROUND AND HISTORY ARCADIAN
Discount the
cash flows
Rodney Chu’s analysis so far had some of focus,
like in the diagram
3. THE DOUBT OF RODNEY CHU, LEAD ON IDENTIFICATION IN
FINANCIAL REPORT
Arcadian Optimist: DNA microarray
technology would pay off dramatically
and quickly: in 2013, revenues and
royalties would top $1 billion Identification Method to Analyse:
1.assessment of forecast assumptions
2.forecasted free cash flows
Sierra Pessimist: FDA approval would 3.looked toward other publicly held
slow down the commercialization of companies in the general same field
Arcadian’s new products, assumed the
firm would not finance itself with debt
Assign Man power from Sierra in
Assessment Process
requested help from Paige Simon, a new
associate with Sierra Capital.
4. RODNEY CHU’S COMPARISON ACTIVITY
Rodney Chu was less optimistic toward investment in Arcadian, believing that the FDA approval process would slow down
the commercialization of Arcadian’s new products. In assessing Investment in Arcadian, Chu looked toward two publicly
held companies in the general field of molecular diagnostics :
5. THE IDEA OF TERMINAL VALUE
Big investors do
not pay taxes
The usual
Taxes in Many investors
assumption is not
to tax terminal
Termina really do not have
much tax
exposure
values
l values
in mergers and
acquisitions analysis, the
most reasonable
assumption is to buy and
hold, not too consent in tax
7. LIQUIDATION VS. GOING CONCERN VALUES
when
would We
Liquidatio
use
n Values
Liquidatio
n Value?
1. PLEAS EXPLAIN THE IMPLICATIONS OF CASE EXHIBIT 1 (PAIGE SIMON’S FIRST TASK). BASED ON THAT EXHIBIT, IS
TERMINAL VALUE A MATERIAL COMPONENT OF FIRM VALUES?
SIMON’S FIRST TASK: PRESENT AND EXPLAIN THE DATA IN EXHIBIT 3
MARKET MULTIPLES AND CONSTANT GROWTH TERMINAL VALUATION
Sellers of companies always want to persuade you of their great growth prospects. If
you buy the optimistic growth assumptions, you’ll have to pay a higher price for the
company.
GROWTH RATE ASSUMPTION
The firm can only grow as fast as it
The Constant adds to its equity capital base (through
“ROE,” less any dividends paid out,
growth formula indicated through the dividend payout
ratio, or “DPO”)
2 Classic approaches
for estimating the
The nominal rate of growth (increase
growth rate The Sum of real in units shipped, increase price,
growth and monopoly, etc) is the product/firm of
the rate of inflation and the “real” rate
inflation of growth
We can’t really foresee Terminal Value, we can only estimate it. The Remember that they are imperfect estimates in
estimators include: Variety of TV, using many different points of
(a) Accounting Book Value observation from the ground. It takes a lot of careful
(b) Liquidation Value, judgment because some of the varieties of terminal
(c) Multiples of Income value are inherently more trustworthy than others.
(d) Constant Growth Perpetuity value. Varieties of
Terminal Values
(Table of exhibit 4 in next slide)
We can probably figure it out. the various estimators From one situation to the next the different estimators
would be appropriate or inappropriate. But have varying degrees of appropriateness. In fact, even
remember that no single estimator will give us a “true” though some one usually disregard book value, there are
value. Wherever possible, we want to use a variety of a few situations in which it might be a fair estimate of
approaches. terminal value
2. DRAWING ON CASE EXHIBIT 4 AND YOUR OWN GENERAL KNOWLEDGE, WHERE WOULD THE VARIOUS ESTIMATORS
BE APPROPRIATE? WHERE WOULD THEY BE INAPPROPRIATE? (SIMON’S SECOND TASK)
SIMON’S SECOND TASK: CONSIDER THE APPROACHES DESCRIBED IN EXHIBIT 4.
3. REGARDING THE CASH FLOW FORECASTS IN CASE EXHIBIT 5, AT WHAT POINT IN THE FUTURE WOULD
YOU SET THE FORECAST HORIZON FOR THE THREE INVESTMENTS? WHY? MORE GENERALLY, WHAT
SHOULD DETERMINE WHEN YOU STOP FORECASTING ANNUAL CASH FLOWS AND ESTIMATE A TERMINAL
VALUE?
USING HISTORICAL GROWTH RATES; SETTING FORECAST HORIZONS
Summary of
All above