This is a finance question. This relates to valuing private companies: cost to d

Question

This is a finance question. This relates to valuing private companies: cost to duplicate, discounted cash flow, comparables, and valuation by stage.

Here is the question. The answer should be at least 2 paragraphs.

Due to a sudden downturn in the California economy, the State of California decides it needs to lighten its load and also raise some cash by selling off some of its assets. It has decided that “education is overrated” (and that people can just learn anything through youtube anyway) and is considering a secret plan to sell CSUSM. Yep, the whole shebang is on sale as a package – the school, name & brand, students, buildings, land, students, team sports, even that cougar mascot (whatever its name is) --- everything.  

As a hotshot business major, the Governor has hired you to consider and report back on how much it could get for the sale in terms of its value, and the pros and cons of the financial factors affecting the possible price.

One urgent factor, Pepperdine Univ has come with a “take it or leave it” offer for $100 million but they want to stretch the payment into equal amounts over 7 years. The Governor wants to know is that offer worth considering at all? What factors would affect it? Should da Guv make a counteroffer that would improve the total return for the sale?

Explanation / Answer

Factors which need to be considered while valuing the company is...

1. What would be my cash flows (free cash after subtracting capex) from the company..in this case education institute.

2. Discount rate: There is a risk that is inherent to every investment whether we invest in equity or debt or in private company..so we should consider an appropriate discount rate for dividing the free cash flow.

3. Growth rate: we should also consider the rate at which cash flow would grow

4. This things should be assumed based on state of economy , comparing returns from similar peers and risk of holding.

5. After assuming all these variable intrinsic value of the school needs to be figured out.

6. If this value is greater than 100 million offered than we should not proceed with the sale. Otherwise we should proceed with the sale

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