simulation page

Product Overview

After having negotiated major financial and operating decisions with its parent company, the CFO of this small ready-mix concrete subsidiary is asked to provide a valuation of the subsidiary. A one-year forecast of financial statements is provided along with information on long-term operating expectations and capital costs. This otherwise straightforward valuation exercise is enhanced by (1) the need to select between the parent- or comparable-firm costs of capital, (2) sufficient guidance to perform an illuminating sensitivity analysis, and (3) a sufficiently clear and rich context in which to illustrate the linkages between operating and financing choices. A teaching note and instructor and student Excel spreadsheets are available.

Learning Objectives

The learning objectives for this case are to develop a valuation of a privately held division including a forecast of cash flows and calculation of an appropriate discount rate; to illustrate the sensitivity of valuations to assumptions; and to explore the economic drivers of terminal value calculations based on perpetual growth.