Sierra Capital
Sierra Capital, a New Mexico based hedge fund organization founded in 1974. The firm has performed well in the past years and successfully maintained the equity investment of the Sierra Capital, and the portfolio of the firm reached approximately 65 investments, these investments reached around $2 billion and spread over the venture capital investment and leverage buyouts. Sierra Capital focused on the life science sector for the investment, and the company has lost a huge amount due to the rapid change and advancement in the biotechnology sector, due to the rapid change in new technologies in the field of biotechnology, Sierra Capital changed the evaluation criteria of their investments to “NRDO”, that is “no research, development only”.
arcadian microarray technologies case solution
Arcadian Microarray Technologies, Inc.
Arcadian Microarray Technologies, Inc. was founded in Arcadia, California in 2003 by a group of researcher to develop technologies for researchers to exploit the human DNA sequence data. These new technologies, build by the Arcadian Microarray Technologies, Inc. helped the researchers to find the reason of the variation in the human genetic codes and the predisposition to the disease. Arcadian Microarray Technologies, Inc. develops a unique glass chip in the field of biotechnology industry, which helps the researchers find the reason of the variation in the human gene and its disease. The Arcadian Microarray Technologies, Inc. business is running in two different segments in the field of the biotechnology, one is the “DNA microarray” and the other one is “Human therapeutics”. Both of these technologies are developed by using different types of conductors and technologies, for the improvement and enhancement of the vaccines, antibiotics and error free treatment of medical conditions in affordable prices. The DNA microarrays technology has been developed and required approval from the food and drug administration department (FDA), which is rapidly done after the development. Management long term strategy is to raise the funding in the firm through external sources, to achieve the goal and the breakthrough of their first proprietary.
Problem Statement:
Rodney Chu and Paige Simon are estimating the present value of projected cash flows and the terminal value of future cash flows of the Arcadian Microarray Technologies, Inc. to calculate the enterprise value of the company, because the different method for the calculation are available to both of these analyst. Five different methods for calculation of termination of the cash flows are available to them. They have to analyze the enterprise from all the aspects of the calculation of the present value of the terminal value of the cash flow.
Analysis:
The different technique to calculate the terminal value of the cash flows are available to them, that is, through price earnings ratio, price earnings to book value, discounted cash flow technique, liquidation value, replacement value and the multiple valuation technique.
The best option to calculate the terminal value of the Arcadian Microarray Technologies, Inc. is the price earnings ratio, price earnings to book value and the constant growth rate method to calculate the terminal value of the cash flows. While calculating the present value of the terminal value of the cash flows, it is assumed that all the weighted average cost of capital of Arcadian Microarray Technologies, Inc. is 20% and the Arcadian Microarray Technologies, Inc. is assumed that is it going to be concerned with business. The terminal value of the projected cash flows shows the overall cash flows received at the end of cash flows, which shows from the proceeding of the investment, the after horizon value of the cash flows. Terminal value is important because organization assumes to be on going concern, therefore the terminal value represents the present value of the assets of the firm and the going concern basis revenue and free cash flows of the company.
ANSWERS OF SPECIFIED QUESTION/ISSUES IN THE CASE:
Discounted Cash Flow Technique:
The growth rate is assumed to be a steady growth of 7%, the 2% is the inflation rate of the Arcadian Microarray Technologies, Inc. The free cash flows of the company is calculated by using the data estimates made by the Arcadian Management for the Arcadian Microarray Technologies, Inc. the terminal value of the cash flows are calculated by the infinity of the horizon value. The terminal value of Arcadian Microarray Technologies, Inc. is calculated by assuming the constant growth of the terminal value of 4 percent and the calculated value of the terminal value is $1,898, and the enterprise value of the company is $104. The net return of the company is 28.53%, the net return is calculated by using the internal rate of return technique. Therefore, the 60 percent equity enterprise value is $62. The cash flows forecast by the management are optimistic....................
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In August 2005, the investment manager of hedge fund is considering buying a stake in the start-up biotechnology company, Arcadian Microarray Technologies, Inc Asking price is $ 40 million for 60 percent of the shares. Managers of the company is optimistic about the future performance of the company, the investment manager is more conservative in their expectations. He calls for help with her analyst firm fashion counterproposal to management in Arcadia. Problems for students to apply the concept of the ultimate cost, completed tests and interpret data, and to obtain the terminal value of the consequences of various assumptions in order to recommend a counteroffer. Very little work requires a numerical indicator of the student. "Hide
by Robert F. Bruner and Sean Carr Source: Darden School of Business 18 pages. Publication Date: December 9, 2005. Prod. #: UV1394-PDF-ENG
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