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# Harmonic Hearing Case Study Sample

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1. ) Please refer to the spreadsheet for the FCF theoretical account. Under the debt scenario. the terminal value of the company is \$ 45. 289. 826. Under the equity scenario. the terminal value of the company is \$ 106. 237. 503. 48. For all debt. there will be a \$ 13M hard currency escape to purchase back the edifice. a \$ 7. 25 M hard currency escape to pay back the mortgage to Collin Bank of Commerce and Bank of McKinney. and a \$ 500k purchase of equipment. For all equity. the company will pay 2/3 of the hard currency flow in Year 7 to Comet Capital.

Comet Capital is expected to gain a 25 % before-tax internal rate of return.

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2. ) We will be able to cipher the net hard currency returns from the repurchased monetary value of the existent estate from Frank Thomas by puting NPV = 0 where NPV = PV ( net hard currency returns from the repurchase monetary value ) + PV ( Annual hard currency flows from the belongings ) – Thomas initial investing. calculated at a 15 % IRR. With an IRR of 15 % . the present value of all the one-year hard currency flow is \$ 770.

347. 27. PV ( net hard currency returns ) = \$ 770. 347. 27 – \$ 2. 100. 000 = – \$ 1. 329. 652. 73 FV = \$ 1. 329. 652. 73* ( 1. 15 ) ^7

Net hard currency returns = \$ 3. 536. 902. 7

Calculations of capital additions revenue enhancement owed:( 0. 2 ) ( X – \$ 8. 669. 384 ) = Yttrium

Calculations of net hard currency returns:Ten – Y – \$ 7. 250. 677 = \$ 5. 245. 075. 08X – 0. 2X + \$ 1. 733. 876. 8 – \$ 7. 250. 677 = \$ 3. 536. 902. 70. 8X = \$ 9. 053. 702. 2Ten = \$ 11. 317. 127

Harmonic must buy back the edifice from Frank Thomas at \$ 11. 317. 127 to bring forth his 15 % after-tax needed rate of return.

3. ) Please refer to my computations in the sheet named “Question # 3” . 59 % of twelvemonth 7’s terminal value must be distributed to Comet Capital to bring forth its needed 25 % before-tax rate of return. The value created under the debt scenario is \$ 37. 089. 386. 37. The value created under the equity scenario is \$ 53. 099. 690. 74.

4. ) Please refer to my computations in the sheet named “Question # 4” . The rate of return for the debt scenario is 1756 % . The rate of return for the equity scenario is 290 % .

5. ) For the all debt capital construction. one advantage is that Burns and Irvine will be able to retain 100 % ownership of Harmonic. However. fixed payments such as rent. rental. and involvement disbursals are big. uninterrupted duties of the company. If forecasted hard currency flows fall short of outlooks. the company would fall into fiscal hurt. Another disadvantage is that there will non be adequate financess to instantly fabricate the new hearing AIDSs which will detain possible gross revenues.

For the all equity capital construction. one disadvantage is that Burns and Irvine’s ownership interest will be significantly reduced. However. with the excess equity capital from the investing. the company will be able to put in the on the job capital and equipment required for internal industry of the new device. In add-on. the new hearing AIDSs will bring forth gross Oklahoman and at higher gross borders than in the all debt scenario. I would urge Burns and Irvine accept Comet’s Capital’s offer and finance the company through private equity financess. There seems to be an mistake in my computations of the sale monetary value to buy back the existent estate from Frank Thomas. The rate of return for equity should be higher than the rate of return for debt. There is excessively much hazard of possible bankruptcy with debt funding.

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