Fall Semester 2012
“Valuation of AirThread Connections” case
Answer each of the following questions. All answers must be typed… no hand-written responses or work
will be evaluated. While your grade will depend solely on your analysis of each question, I cannot read
minds; make sure that your work and analysis is comprehendible. The exams are due by the following
Section 1 (10:10-11am section): Thursday, December 13th, 10:00am
Section 2 (11:10-12pm section): Wednesday, December 12th, 5:10pm
You may submit your exams early, but no late exams will be accepted without substantial late penalties
(trust me… the extra time you would get would not be worth it). Exams should be submitted to the
finance department office (Todd 470B), where the department administrator (Nikki Cherry) will track and
keep them for me. You may submit them directly to me, but only in person (in other words, you can hand
it directly to me but do NOT slip them under my office door). You must submit a hard copy of the final
exam… I do not want electronic submissions of the exam.
This exam is open-book, open-note, and closed-“everything else” (neighbors, friends, parents, etc.). You
may look up information on the internet (such as definitions of terms and items of information), but you
are not allowed to access anyone else’s analysis. If you are unsure of what is acceptable under this
policy, you should ask me first. If you have questions about the case, I am available for assistance.
Once the exams are graded, I will post the exam grades on the course website (disguised by your WSU ID
number). Your course grade will be submitted to the WSU Registrar. You may come by my office next
semester to get your final exam.
Good luck on this exam… and enjoy your holiday break. And for those graduating, congratulations!
1) Given the information in the case, which method is best for conducting a discounted cash flow
analysis of the value of AirThread? Why? (10 points)
2) What is the purpose of the terminal value? Explain. (15 points)
3) Calculate the value of AirThread as a stand-alone firm (with no synergies) using the discounted
cash flow method that you answered for (1) above. Be sure to clearly show how you arrive at this
valuation. (50 points)
4) Calculate the value of AirThread to American Cable (with synergies) using the discounted cash
flow method that you answered for (1) above. Be sure to clearly show how you arrive at this
valuation. (25 points)