'RR'D' **+ Strate"i, -inan,ial ana"ement
Submitted to:
Submitted by:
Dr. Sudershan Kuntluru
Group 2 Nishant Dey Purkayastha (PGP/18/153) Amritanshu Ry (PGP/18/18!) An"ara Sa#ena (PGP/18/181) Sulekh $ain (PGP/18/%%&) Aniruddha Ghsh (PGP/18/%8&)
Contribution of each Member
Roll no.
Name
Contribution %
PGP/18/153
Nishant Dey Purkayastha Amritanshu Roy Angara Saxena Sulekh Jain Aniruddha Ghosh
20% 20% 20% 20% 20%
PGP/18/180 PGP/18/181 PGP/18/224 PGP/18/284
1. Assuming the market was rational at the time (i.e. market prices refect undamental alues!" how much was #ridium worth on a per share basis at the end o 1$$% according to the pro&ections in 'hibit )* +hat are
the important determinants o alue* ,ow con-dent are you in your answer* (lease assume the market risk premium e/uals 0.).!. Risk Premium .5!0 Risk -ree Rate 5.!2 #4e,ted Asset Return (Ra) Risk -ree Rate Asset 6eta7Risk Premium #4e,ted Asset Return (Ra) 5.! 1.%87.5! 1&.92
Terminal Value 2007 Present Value of TV
$28,212.7 7
Firm Value
$8,217.05 $12,788.0 2 $15,035.2 7
NPV Debt
$2,247.26
NPV value of Iridium's Equity
'ridium:s ;rst <ray int the 4u=li, markets ,,urred in $une 1.'ridium >rld +mmuni,atins *td. ('>+*)0 a 6ermuda ,r4ratin sld 1% millin shares at ?%!.!! a 4ie,e@these shares re4resented 8.52 < 'ridium:s ttal utstandin" shares tal Butstandin" Shares1&1.195 illin 'ridium:s >rth Per Share 6asis ?!.58 ('.e. A
Determinants < the Calue • • •
'nterest Rate +st < uity +a4ital +ash -lEs
2. onduct sensitiity analysis on the aluation. +hy is #ridium potentially worth so much* 'nterprise 3alue erminal Per4etuity GrEth Rate Disco unt Rate
0.5%
10.7%
?%%01!.9
12.7%
?10%3.5
14.7%
?1&0!58.9
16.7%
?1103&8.5
18.7%
?0%5.&
2.0%
2.5%
?%505&. ! ?10%. 1 ?150!35. 3 ?110%. &
?%909&3. % ?1089. 9 ?150&1&. % ?1%0%3. &
?015.8
?088!.
3.5%
?%0%88. % ?%1033. 8 ?190%3. 8 ?1%08%. ?1!0%&3. 1
4.5%
?3%08. 8 ?%30131. ! ?103!%. ! ?130&1. ?1!0959. 9
'/uity 3alue erminal Per4etuity GrEth Rate Disco unt Rate
0.5%
10.7%
?%!0993.3
12.7%
?150&9.3
14.7%
?110811.3
16.7% 18.7%
2.0%
2.5%
?01!1.%
?%303!1. ?10!%. 8 ?1%088. ! ?0&5.%
?%&035. ?109&. 3 ?13019. ! ?0!.1
?0!%8.1
?0&98.5
?0933.&
3.5%
?%0!&!. ?10!!. 9 ?1&0!%9. 5 ?1!0535. 9 ?05.8
4.5%
?3!05&!. 9 ?%!0883. 8 ?150!5&. 8 ?1101!. 9 ?80&!.3
3alue er Share erminal Per4etuity GrEth Rate Disco unt Rate
0.5%
2.0%
2.5%
3.5%
4.5%
10.7%
?1&9.3
?195.!5
?1%.8!
?11.5&
?%19.33
12.7%
?1!.9%
?1%!.93
?1%5.!%
?135.%%
?1&.3
14.7%
?83.99
?!.58
?3.%
?.35
?1!9.9&
16.7%
?9&.&
?9.!3
?!.9
?&.93
?.13
18.7%
?&.8
?5%.!
?5&.!
?59.9&
?5.5
As 4er a re4rt =y ,Kinsey (#hi=it %)0 the SS market is e#4e,ted t "rE at a +AGR < 9!.32
4. +hat caused #ridium to ail: was it a bad strategy" bad eecution" or bad luck* he reasns <r
5ad Strategy •
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arketin" and Sales mistakes SiJe t =i" and 4hnes nt aHaila=le in stres Ehen adHertisin" ,am4ai"n Eas run BHer4ri,ed 4hnes ? 30!!! Pri,es t hi"h ?3.!! F ?.5! 4er ,all i#ed 4redi,tins re"ardin" the m=ile satellite market *eslie aylr Ass,iates 4redi,ted a user =ase < mill. su=s,ri=ers and reHenues < ?8 %! =ill. =y %!!3 -rrester Resear,h 4redi,ted that the "l=al satellite market Euld =e as mu,h as ?39 =ill. =y %!!5.
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Cery am=itius 4re,t 'ridium had si"ned %59 4eratin" a"reements Eith l,al 4rHiders in Her 1!! ,untries =y $uly 1. he ,m4any still had t ne"tiate a"reements Eith anther 1&! ,untries and territries
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Pre,t -inan,in" 'ridium **+ Eas a s4inFL
5ad 'ecution
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+ith regard to #ridium7s -nancial strategy" did it hae the wrong target capital structure" issue the wrong kinds o capital" or issue capital in the wrong se/uence* 'amine its target capital structure o debt8to8total book capitali9ation ratio o ;* 3 ratio o ;: • •
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+annt =e e#4lained =y trade L thery sin,e ta# rate is 152 nly. Althu"h Pe,kin" rder thery and Si"nalin" thery su44rt 4re
?inancing Se/uencing •
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Started Eith euity durin" the riskiest sta"e (resear,h) sin,e de=t Euld =e mis4ri,ed due t asymmetri, in<rmatin and risk. 'n deHel4ment0 =ru"ht in mre euity0 ,nHerti=le de=t and hi"h yield de=t. his 4rt<li mat,hes the risk 4r;le then. -r ,mmer,ial laun,h0 "t =ank lans a"en,y mtiHatins emer"e. 'ridium mar de=t ;nan,e Eas shrt term de=t Eith the maturity Eith in
+hat lessons regarding the -nancing o large" green-eld pro&ects do you draw rom this case study* -inan,ial Cia=ility Parameters like 'RR0 sensitiHity analysis0 4ay=a,k 4erid shuld =e used t determine ;nan,ial Hia=ility Su,h 4re,ts ,an =e eHaluated as a Real B4tin •
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Shrt maturity dates n lans did nt 4rHide suO,ient time t "ather enu"h su=s,ri=er reHenues t serHi,e the de=t PrHide st,k 4tins t mana"ers t ali"n 4ersnal interests Eith the 4re,t:s su,,ess 6e ,nserHatiHe Eith estimatins and 4re,tins0 es4e,ially <r untested markets
+mmer,ial Cia=ility est market *imited rllFut -,us "ru4 6etter understandin" < the ,m4etitin HerFestimatin < the 4ra,ti,ality < the deHi,e and usa"e re time in analyJin" ar"et arket (Ern" tar"et market shuld haHe tar"eted De4t. < De
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