Case Studies (Laura Martin) - Research Paper Example

In the DCF analysis, the Net Present value has been calculated as the present value of the future net free cash inflows or the revenue of the business, minus the expenses, or the present value of the costs incurred (Mauboussin, 5). In most cases, these two are discounted using the company’s WACC (Stearns, 29). This assumption though made by Laura Martin is a flawed assumption. Mainly, free cash flows depend on the demand in the market, prices in the market, and other external factors in the market, with the market compensating firms; because of taking marketing risks (Chan et al, 3).

In most cases, costs should be discounted at a rate higher than the risk free rate (Stearns, 3). This means that discounting the cash flows and the costs at similar rates will significantly reduce the costs; such actions would lead to overhaul of the firm (Chen et al, 3). Martin in these calculations used the beta approach, which measures the co-movements of firms’s equity prices of 1.07 in forecasting 10 years of cash flows in the market and which is affected by so many market variables (Mauboussin, 16).

However, equity prices are unstable and change each time depending market business conditions. The multiple analyses assumed that the firm would realize the stated future sales revenue at the end of the forecast period (Chen et al, 3). Firms that have comparable acquisitions, particular in the same industry are used as a base in finding an appropriate range of multiples to use (Stearns, 24). Though multiples are very plausible, they have a problem in that there is no possibility of having a company that is comparable to Cox as firms do use various valuation approaches.. The ‘stealth- Tier’ can be incorporated into the DCF and the multiples analysis.

The unused cable capacity of Cox communications can be included into the discounted cash flow analysis, through