Question

You have just completed a valuation of Hardwire, an internet service provider, and have come up with a value of $1,000M for the operating assets of the firm. Consider the following, and estimate the value of common equity and the value per share. Hardwire has

• $37M in cash

• A 15% cross-holding in a web-hosting company. The company is valued at $100M.

• A large vacant lot, purchased for a possible future headquarters, valued at $5M

• $100M in face value of 10-year straight debt outstanding, trading 6% below face value

• $250M in face value of 10-year convertible debt outstanding, trading at 10% above face value

• Operating lease commitments with a present value of $27M

• 1 million shares of preferred stock trading at $15 per share

• A pension plan that is underfunded by $14M

• A pending lawsuit in which the firm is the defendant and has a 25% chance of losing. If Hardwire loses, it will have to pay an estimated $8M in damages.

• 10 million warrants trading at $10 per warrant

• 8 million common shares outstanding

Answer 1

Please see the table below. Please follow the calculations sequentially. Please be guided by the sign [+] / [-] at the beginning of each row. All financials are in $ M except number of shares that is stated in million and value of share which is stated in $ / share. The cells highlighted in yellow contain your answers.

Parameter	Linkage	$ M
Value of the operating assets		1000
[+] Cash		37
[+] value of the cross holding	15% x 100	15
[+] Value of land		5
[-] Value of straight debt	100 x (1 - 6%)	94
[-] Value of the convertible debt	250 x (1 + 10%)	275
[-] PV of operating lease		27
[-] Value of the preferred stock	1mn x $ 15 / share	15
[-] Underfunded portion of pension plan		14
[-] Expected damage in lawsuit	25% x 8	2
[-] Value of the warrants	10 mn x $ 10	100
Value of the common equity	A	530
Number of common shares (mn)	B	8
Value per share ($ / share)	A / B	66.25