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Radio One Inc Case Solution
Radio one was going on the stage of purchasing radio stations that were considered as underperforming. Radio one gained financial successes by taking over these radio stations by transforming them into the urban format. The company had used the programming and other operating skills in this way. An opportunity was revealed to grow as a larger platform when it was announced a merger between two big players in the radio industry. CEO and CFO of radio one agreed to grasp this opportunity to acquire at least 12 African- an American radio station that was likely to be relieved by merging parties in case of happening of the merger. Here, it was the need to evaluate how much the company should offer to acquire this station. Discounted cash flow was seemed to be a tool applied to get an answer to the question. Radio one was going through excellent growth. It had funds to go for acquiring stations.
Case Analysis for Radio One Inc
By taking the help of projections, it was analyzed that the company should offer $ 345 Million. It comes in the approximate range. Government 1-year bond was taken as a risk-free rate determinant. The cost of equity determination involved the estimation of the market risk premium that was taken difference in corporate bond interest rate and government bond interest rate. Capital expenditures were subtracted from broadcast cash flow to come up at closer to free cash flow at the end Working can be seen in Excel file.
In 1999, radio one performed extraordinary with revenue growth of 51%, broadcast cash flow growth of 56% and after cash flow of 125% in comparison with previous years. African American demographic population reveals the growth of the market in that area, as listeners are likely to be targeted in a new fresh manner. Demographics factors were likely to play a great role in the successes of the potential future acquisition like faster population Growth (60%), African American being largest Minority Group in the USA expected population of 4o MM till 2010 and faster income growth than another population sector (150%).
Besides power ratio are likely to increase from 0.81 to 0.85 in 2002 which indicates advertisement dollars in a niche market that was capture by any radio station.
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