TEAM 3
Boyega Ajayi
Ines Chen
Damon Delorenzis
Jessica Jusuf
Doreen Marcher

Opportunity for Radio One as a result of
divestures by Clear Channel
Communications.

Potential acquisitions of 21 stations

What is the right price?

The consolidation trend in the radio station
industry.

Reduced expenses

Increased prices for radio stations

Divestiture by Clear Channel



Evaluate the Broadcast Cash Flows (BCF) of
the targeted radio stations
Determine and evaluate appropriate
multiples that can be used to evaluate the
potential acquisitions
Determine an appropriate offer price for the
targeted radio stations

Multiples
◦ Broadcast Cash Flow (BCF)
◦ Earnings before Income Tax
◦ Depreciation and Amortization (EBITDA)
◦ After Tax Cash Flows

Discount Rate  Unlevered Cost of Equity

Discounted cash flow
 Corporate Valuation
◦ Forecast period
◦ Horizon Value

Multiple Analyses

rsu=rRF+(RPM)(ßu)

Hamada Equation
PRM
7.2%
rRF
6.28%
0.61
ßu
Average asset ßi 0.75
Rs
10.71%

Depreciation of property and equipment
◦ Straight line depreciation for 15 years

Capital Expense
= 21 new operating Units X $100,000 each
= $2.1M
Net Broadcast Revenue
BFC
Total Current Assets
Total Current Liabilities
NWC
Change in NWC
1997
32,367,000
13,519,000
17,537,000
3,287,000
14,250,000
Actual
1998
1999
46,109,000 81,703,000
21,608,000 37,444,000
17,641,000 284,463,000
5,041,000 10,136,000
12,600,000 274,327,000
-1,650,000 261,727,000
NWC % of Revenue
NWC % of BFC
44.0%
105.4%
27.3%
58.3%
335.8%
732.6%
Adjusted
NWC % of Revenue
NWC % of BFC
44.0%
105.4%
27.3%
58.3%
22.0%
47.9%
Total
BCF(1000s)
101,548, 116,079 136,034, 158,249, 180,786 205,920
Total Corporate
Expense(1000s)
6,000
6,000
6,900
BCF - Potential
New Markets
59,014
65,041
76,436
89,711 101,966 115,277
BFC-NewMarkets
/ TotalBCF
58.1%
56.0%
56.2%
56.7%
Corp Expense for
Potential New
Markets (1000s)
3,487 3,362 3,877
7,935
9,125
56.4%
10,494
56.0%
4,498 5,147 5,875
Net Working Capital (NWC) % of
BCF
Year 0
1999
Revenue to Growth
Gross Revenue
Direct Expenses
Net Revenue
Operating Expenses
BCF
Corporate Expenses
EBITDA
Depreciation and Amortization
Depreciation Capital Expenditure
EBIT
Taxes
NOPAT
Steady State
Growth
WACC
Tax Rate
47.90%
4.00%
10.71%
34.00%
$120,486
15,094
$105,392
Year 1
2000
8.22%
$130,384
16,243
$114,143
Year 2
2001
12.35%
$146,488
18,176
$128,313
Year 3
2002
12.56%
$164,891
20,432
$144,460
Year 4
2003
10.75%
$182,609
22,624
$159,985
Year 5
2004
9.89%
$200,676
24,857
$175,820
$46,376
59,014
$3,487
$55,527
$0
$0
$55,527
$18,879
$36,648
$49,102
65,041
$3,362
$61,679
$0
$0
$61,679
$20,971
$40,708
$51,877
76,436
$3,877
$72,559
$90,000
$420
-$17,861
-$6,073
-$11,788
$54,750
89,711
$4,498
$85,213
$90,000
$840
-$5,627
-$1,913
-$3,714
$58,020
101,966
$5,147
$96,819
$90,000
$1,260
$5,559
$1,890
$3,669
$60,543
115,277
$5,875
$109,402
$90,000
$1,680
$17,722
$6,026
$11,697
$90,000
$2,100
$636
$83,550
$90,000
$2,100
$587
$90,982
$90,000
$2,100
$638
$98,959
Add: Depreciation
Less: Capital Expenditure
Less: Increase in NWC
FCF
$0
$0
$0
$0
$36,648
$40,708
$90,000
$2,100
$3,662
$72,450
Terminal Value
FCF+Terminal Value
$0
$36,648
$0
$40,708
$0
$72,450
$0
$83,550
$0
$90,982
$710,399
$809,358
$3,662
-$87,900
-0.08
-1.67
$4,297
-$87,900
-0.02
-1.88
$4,885
-$87,900
0.02
-2.08
$5,522
-$87,900
0.06
-2.28
Enterprise Value
$119,888
$270,000
$2,100
$11,229
$90,000
$3,516
$51,904
$45,809
$669,705
NWC Balance
NPPE (CAPEX-Dep. Per year)
NOPAT/Sale
Sale/NPPE
Multiples
Enterprise Value / BCF
Enterprise Value / EBITDA
Enterprise Value / After-Tax Cash
Flow
Year 6/Steady
State
2005
4.00%
$208,703
11.3
12.1
18.3
$57,426
-$84,384
Net Working Capital (NWC) % of
BCF
Year 0
1999
Revenue to Growth
Gross Revenue
Direct Expenses
Net Revenue
Operating Expenses
BCF
Corporate Expenses
EBITDA
Depreciation and Amortization
Depreciation Capital Expenditure
EBIT
Taxes
NOPAT
Steady State
Growth
WACC
Tax Rate
47.90%
6.00%
10.71%
34.00%
$120,486
15,094
$105,392
Year 1
2000
8.22%
$130,384
16,243
$114,143
Year 2
2001
12.35%
$146,488
18,176
$128,313
Year 3
2002
12.56%
$164,891
20,432
$144,460
Year 4
2003
10.75%
$182,609
22,624
$159,985
Year 5
2004
9.89%
$200,676
24,857
$175,820
$46,376
59,014
$3,487
$55,527
$0
$0
$55,527
$18,879
$36,648
$49,102
65,041
$3,362
$61,679
$0
$0
$61,679
$20,971
$40,708
$51,877
76,436
$3,877
$72,559
$90,000
$420
-$17,861
-$6,073
-$11,788
$54,750
89,711
$4,498
$85,213
$90,000
$840
-$5,627
-$1,913
-$3,714
$58,020
101,966
$5,147
$96,819
$90,000
$1,260
$5,559
$1,890
$3,669
$60,543
115,277
$5,875
$109,402
$90,000
$1,680
$17,722
$6,026
$11,697
$90,000
$2,100
$636
$83,550
$90,000
$2,100
$587
$90,982
$90,000
$2,100
$638
$98,959
Add: Depreciation
Less: Capital Expenditure
Less: Increase in NWC
FCF
$0
$0
$0
$0
$36,648
$40,708
$90,000
$2,100
$3,662
$72,450
Terminal Value
FCF+Terminal Value
$0
$36,648
$0
$40,708
$0
$72,450
$0
$83,550
$0
$90,982
$962,025
$1,060,984
$3,662
-$87,900
-0.08
-1.67
$4,297
-$87,900
-0.02
-1.88
$4,885
-$87,900
0.02
-2.08
$5,522
-$87,900
0.06
-2.28
Enterprise Value
$122,194
$270,000
$2,100
$10,995
$90,000
$5,274
$53,009
$42,712
$806,391
NWC Balance
NPPE (CAPEX-Dep. Per year)
NOPAT/Sale
Sale/NPPE
Multiples
Enterprise Value / BCF
Enterprise Value / EBITDA
Enterprise Value / After-Tax Cash
Flow
Year 6/Steady
State
2005
6.00%
$212,717
13.7
14.5
22.0
$58,531
-$82,626
Net Working Capital (NWC) % of
BCF
Year 0
1999
Revenue to Growth
Gross Revenue
Direct Expenses
Net Revenue
Operating Expenses
BCF
Corporate Expenses
EBITDA
Depreciation and Amortization
Depreciation Capital Expenditure
EBIT
Taxes
NOPAT
Steady State
Growth
WACC
Tax Rate
47.90%
8.00%
10.71%
34.00%
$120,486
15,094
$105,392
Year 1
2000
8.22%
$130,384
16,243
$114,143
Year 2
2001
12.35%
$146,488
18,176
$128,313
Year 3
2002
12.56%
$164,891
20,432
$144,460
Year 4
2003
10.75%
$182,609
22,624
$159,985
Year 5
2004
9.89%
$200,676
24,857
$175,820
$46,376
59,014
$3,487
$55,527
$0
$0
$55,527
$18,879
$36,648
$49,102
65,041
$3,362
$61,679
$0
$0
$61,679
$20,971
$40,708
$51,877
76,436
$3,877
$72,559
$90,000
$420
-$17,861
-$6,073
-$11,788
$54,750
89,711
$4,498
$85,213
$90,000
$840
-$5,627
-$1,913
-$3,714
$58,020
101,966
$5,147
$96,819
$90,000
$1,260
$5,559
$1,890
$3,669
$60,543
115,277
$5,875
$109,402
$90,000
$1,680
$17,722
$6,026
$11,697
$90,000
$2,100
$636
$83,550
$90,000
$2,100
$587
$90,982
$90,000
$2,100
$638
$98,959
Add: Depreciation
Less: Capital Expenditure
Less: Increase in NWC
FCF
$0
$0
$0
$0
$36,648
$40,708
$90,000
$2,100
$3,662
$72,450
Terminal Value
FCF+Terminal Value
$0
$36,648
$0
$40,708
$0
$72,450
$0
$83,550
$0
$90,982
$1,580,995
$1,679,954
$3,662
-$87,900
-0.08
-1.67
$4,297
-$87,900
-0.02
-1.88
$4,885
-$87,900
0.02
-2.08
$5,522
-$87,900
0.06
-2.28
Enterprise Value
$124,499
$270,000
$2,100
$10,761
$90,000
$7,032
$54,113
$39,616
$1,142,621
NWC Balance
NPPE (CAPEX-Dep. Per year)
NOPAT/Sale
Sale/NPPE
Multiples
Enterprise Value / BCF
Enterprise Value / EBITDA
Enterprise Value / After-Tax Cash
Flow
Year 6/Steady
State
2005
8.00%
$216,730
19.4
20.6
31.2
$59,635
-$80,868
Steady Growth Rate
Enterprise Value
(000s)
Scenario 1
4%
669,705
Scenario 2
6%
806,391
Scenario 3
8%
1,142,621
Enterprise
Value
Multiple of
After-Tax CF
Enterprise
Value Multiple
of BCF
Enterprise
Value Multiple
of EBITDA
Scenario 1
11.3
12.1
18.3
Scenario 2
13.7
14.5
22.0
Scenario 3
19.4
20.6
31.2
Multiples Analysis of BCF
Growth Depreciation
Enterprise Value
BCF
($ 1000s)
($ 1000s)
Enterprise Value
Multiple of BCF
4%
15 year
669,705
59,014
11.3
6%
15 year
806,391
59,014
13.7
8%
15 year
1,142,621
59,014
19.4



Too many factors make it very difficult to
assess an Acquisition proposal accurately
The Cost of Capital for the targeted stations
is an assumption that could be changed
Expenses such as corporate expense and net
working capital are based on assumptions
that the targeted radio stations will have
ratios similar to Radio One



As revealed by the risk analysis, some of
the stations may be overvalued
Radio One should acquire all 21 stations
and we recommend an offer not greater
than 21 x BCF
The management should capitalize on their
high stock price when structuring the
acquisition of the 21 targeted radio stations