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StreamX. Spotify is looking at another potential acquisition in the music field. The music service, StreamX, has projected sales of $125 million next year. Costs (including depreciation) are expected to be 74 percent of sales and depreciation and net investment (PPE and working capital) are expected to be 3 percent and 5 percent of sales, respectively. Sales are expected to grow at 20 percent the following year, with the growth rate declining by 4 percentage points per year until the growth rate reaches 4 percent, where it is expected to then drop to 3 percent the next year and remain there indefinitely. StreamX has debt of $65 million outstanding . There are 1.5 million shares of stock outstanding and investors require a return of 12 percent on the company’s stock. The corporate tax rate is 25 percent.
Create a new Excel worksheet tab with the name of the company at the top. Show all steps in your process to answer the following questions.
Start a new worksheet tab to answer this question.
What is your estimate of the value of StreamX today? In answering, provide an explicit detailing of the following:
The Operating Cash flow in T1 and T2.
The Horizon value at the end of the non-constant growth period.
Your estimate of the Value of Operations.
Your estimate of the Equity value per share.
Use Excel to show work.