## Case on Pinnacle Videos

Please read the attached case on Pinnacle Videos , and answer the attached Assignment Questions. Your answers must be backed by sound quantitative analysis done in Excel.

As and where necessary, clearly write down your assumptions. You can submit a word document with an explanation of your calculations and answers alongside your Excel File.

Comments from Support Team:

1. What is the value, and net present value of the project, if it is entirely equity financed?

2. Suppose that Pinnacle Videos assumes a fixed level of debt of $750,000. Use the adjusted present value (APV) approach to determine the value, and net present value, of the project.

3. Suppose that Pinnacle Videos assumes debt so as to maintain a debt ratio of 25% (in market value terms). Determine the value, and net present value, of the project using:

a. The weighted average cost of capital (WACC) approach

i. What are the implied debt levels of the project?

ii. What do the debt levels look like beyond 2006? What is the growth rate in debt?

b. The flow to equity (FTE) approach

i. What do levered cash flows look like beyond 2006? What is the growth rate in levered cash flows?

c. The capital cash flows (CCF) approach

i. What do capital cash flows look like beyond 2006? What is the growth rate in capital cash flows?

d. The adjusted present value (APV) approach

i. What do interest tax shields look like beyond 2006? What is the growth rate in interest tax shields?

You should confirm that the net present value of the project is the same in parts (a) – (d).

Hint: For questions 1 – 3 above, you may find it useful to forecast numbers beyond 2006 to year 2008 or 2009, accounting for terminal value growth rate of 5%.