Calculating Discount Rates
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This paper addresses the concept and determinants of present value and the discount factors that affect businesses. The paper presents a two-part case study. Part I addresses a series of discount rate calculation issues. Part II then discusses the writer's analysis of two companies to determine which company would have the lowest discount rates based upon several determinants outlined in the study material.
Table of Contents:
Table of Contents:
From the Paper:"Sirius has a massive cost structure - 2006 cash operating expenses (not including depreciation and non-cash compensation) were $414 million. The management's effectiveness was terrible with a negative 20 percent return on assets. The company's Q4 and full year 2006 financial results are mind-blowing. The year-over-year quarterly revenue growths were 141 percent however the net income was a negative $1.1B. Over the past 12 months, the stock price for Sirius Satellite Inc. had a significant change of minus 35 percent. Thus the volatility of the stock is large with a negative change over the past 52 months. Although Sirius Satellite Inc works in a more dynamic industry where the risks are higher, the growth expectations are expected to be higher next year. With Mercedes expediting installation of radios in a high percentage of their cars and the projected merger with XM Radio Inc., the future for Sirius looks better. One of the major risks of management effectiveness has been haunting Sirius for many years. This risk needs serious attention and mitigation steps are required to heal this wound."
Sample of Sources Used:
- http://www.finance.yahoo.com/q/pr?s=SIRI, downloaded April 25, 2007
- http://www.finance.yahoo.com/q/pr?s=PFE, downloaded April 25, 2007
Cite this Case Study:
Calculating Discount Rates (2007, November 25) Retrieved May 08, 2021, from https://www.academon.com/case-study/calculating-discount-rates-99727/
"Calculating Discount Rates" 25 November 2007. Web. 08 May. 2021. <https://www.academon.com/case-study/calculating-discount-rates-99727/>