The Safe rate of 2.58 percent is the 20-year treasury bond rate as of November 24, 2017.
The equity risk premium of 5.5 percent is recommended by KPMG as of September 30, 2017 (Weimar et al. 2017, p. 1).
The size premium of 11.63 percent is per the Duff & Phelps Valuation Handbook (the successor to Ibbotson) for the 10z decile, which is closest to our company’s market capitalization/valuation (Grabowski 2017, p. 19).
The specific company risk of 2.94 percent is per the Highland Global formula (“The Specific Company Risk Premium: A New Approach” 2017, pp. 9-11), applied as follows:
1.40 percent for financial risk, as measured by the total debt ratio of 1.64.
0.84 percent for operational risk, as measured by the 0.56 ratio of fixed costs to …show more content…
The cash-to-earnings factor of 7.89 percent is calculated per the National Association of Certified Valuation Analysts (NACVA) guidelines based on the after-tax net income capitalization rate of 26.20 percent, minus the after-tax net cash flow rate of 18.32 percent (Tebay, et al. 2012, ch. 5 p. 12).
The intangible earnings factor of 5.00 percent is simply a subjective qualitative judgement based on similar cases. Examples of intangible assets may include customer and vendor relationships, brand recognition, or even proprietary recipes, and these contribute to earnings.
The final target WACC is a high figure of 56.52 percent, reflecting very significant aggregate risks and associated risk premiums. Two of the most important risk factors include the business’s small size and difficulties in converting income to cash flow (mainly due to steady increases in operating capital, especially cash and PP&E). The high risk lowers the intrinsic valuation …show more content…
The company has $1,802,334 in long term debt, representing zero-interest loans from two of its owners. At this point we should mention the details of the ownership structure: Laguna Starfish is a limited partnership which is in turn owned by three other limited partnerships. One of the “owner” LPs acts as the operational manager, and the other two are primarily investors. It is these last two investors who provided the large loans. According to the managing owner, these are zero interest loans on which no payments have been made, nor have payments been requested, but clearly even an extremely generous intrinsic valuation would not exceed the long-term debt. If the owners eventually want to sell the company, it will be very favorable for valuation to pay down, or pay off, these large
The equity risk premium of 5.5 percent is recommended by KPMG as of September 30, 2017 (Weimar et al. 2017, p. 1).
The size premium of 11.63 percent is per the Duff & Phelps Valuation Handbook (the successor to Ibbotson) for the 10z decile, which is closest to our company’s market capitalization/valuation (Grabowski 2017, p. 19).
The specific company risk of 2.94 percent is per the Highland Global formula (“The Specific Company Risk Premium: A New Approach” 2017, pp. 9-11), applied as follows:
1.40 percent for financial risk, as measured by the total debt ratio of 1.64.
0.84 percent for operational risk, as measured by the 0.56 ratio of fixed costs to …show more content…
The cash-to-earnings factor of 7.89 percent is calculated per the National Association of Certified Valuation Analysts (NACVA) guidelines based on the after-tax net income capitalization rate of 26.20 percent, minus the after-tax net cash flow rate of 18.32 percent (Tebay, et al. 2012, ch. 5 p. 12).
The intangible earnings factor of 5.00 percent is simply a subjective qualitative judgement based on similar cases. Examples of intangible assets may include customer and vendor relationships, brand recognition, or even proprietary recipes, and these contribute to earnings.
The final target WACC is a high figure of 56.52 percent, reflecting very significant aggregate risks and associated risk premiums. Two of the most important risk factors include the business’s small size and difficulties in converting income to cash flow (mainly due to steady increases in operating capital, especially cash and PP&E). The high risk lowers the intrinsic valuation …show more content…
The company has $1,802,334 in long term debt, representing zero-interest loans from two of its owners. At this point we should mention the details of the ownership structure: Laguna Starfish is a limited partnership which is in turn owned by three other limited partnerships. One of the “owner” LPs acts as the operational manager, and the other two are primarily investors. It is these last two investors who provided the large loans. According to the managing owner, these are zero interest loans on which no payments have been made, nor have payments been requested, but clearly even an extremely generous intrinsic valuation would not exceed the long-term debt. If the owners eventually want to sell the company, it will be very favorable for valuation to pay down, or pay off, these large