SUDA INVESTMENT Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

SUDA INVESTMENT Case Solution

Thirdly, there existed les profitability in the industry as the profit of e-bikes was dependent on the premium prices. However, due to low entry barriers, huge competition and high threat of entrants, the players in the industry had to charge low prices to stay competitive.
There was also a risk of licensing and government regulation on the PRC’s e-bikes market, as the market had remained unregulated over the time. The regulations could include tax requirements, reduced emission levels, licenses or the requirements.

Enterprise Value Using DCF Valuation

In order to calculate the enterprise value for SuDa Company, the discounted cash flow valuation has been used. The discounted cash flow model is considered more reliable as it includes the future cash flows and also includes the time value of money concept, in calculating an enterprise value of the firm. The analysis was performed by starting with cash flows foretasted by Wang for a period of 5 years from 2013-2014 (See Appendix 1). Then, to discount the cash flows, a weighted average cost of capital was calculated as 9.14% (See Appendix 2). The cost of equity was the required rate of return by Mr. Wang i.e. 20%. The weights of debt and equity were calculated by dividing the total debt and total equity with total capital of the firm, which resulted in 89% debt and 11% equity levels.

The terminal value at the end of 2017 (assuming a growth rate of 6% annually) was calculated by the equation i.e. FCFF/ (1+g)/ (WACC – g), which resulted $ 4608.402 million. Then all the cash flows were discounted by the 9.14% weighted average cost of capital. The enterprise for SuDa Electric Vehicle Company was $3349.31(See Appendix 3) million according to the discounted cash flow valuation model.

Enterprise Value Multiple Valuation

The multiple valuation model was also used to determine the enterprise value of SuDa Company. The EV/ Sales, EV/EBIT and EV/EBITDA valuation multiples were used to calculated the enterprise value of the company. The industry peer “Piaggio & C.SpA” was selected for choosing the multiples, because its sales and enterprise value were close to the SuDa’s figures. The multiples of Peer Company were multiplied with the sales, EBIT and EBITDA of SuDa Company to get the enterprise values as shown in Appendix 4.

Internal Rate of Return – IRR

An IRR of 1484% (see Appendix 5), was calculated using a cash outflow of $6 million and the cash inflows as foretasted by Wang. According to (Hayes, 2020), an investment alternative can be chosen if it provides a greater internal rate of return over the required rate of return by the investor. The required of return by Mr. Wang was 20% and the resulted IRR was 1484%, so, the Ships-ton can pursue the investment alternative.

Exit Option for Ships-ton Group

In case the e-bike industry doesn’t perform well in the future and the growth prospects don’t remain fruitful then the company must opt for exit options, which be initial public offering, acquisition or the management buyout. The company can offer its shares to the general public through IPO, or it can acquire the whole firm and start putting efforts in revving the whole structure and values of the company, to be delivered to the PRC market of middle class customers. To figure out an exit point for the Ships-ton, it is recommended to follow the peer group multiple valuation standards. If the company’s multiple valuation figures does not move close to the peer ones, them it should exit the industry by adopting any of the mentioned options.

Conclusion

As the PRC market represents a huge growth potential due to rising population and need for better and efficient transportation measure, it represents an investment alternative for the Ships-ton Group. Wang should go for the investment because the enterprise value from the DCF and the multiple valuation model was higher than most of the peers in the industry. The IRR analysis also concluded that the investment alternatives IRR is greater than required rate of return by Wang i.e. of 20%.So, the SuDa Company is fairly valued and it can be a profitable source of investment for the Ships-ton Group.......................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

SUDA INVESTMENT Harvard Case Solution & Analysis