Project Report: Finance

Running Head: Finance
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Project Report: Finance

Finance
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Contents
Introduction.......................................................................................................................3
Good fit for oracle............................................................................................................3
Approaches.......................................................................................................................3
DCF valuation...................................................................................................................3
Multiple analyses..............................................................................................................4
Synergies and sensitivity analysis....................................................................................4
Price..................................................................................................................................5
Conclusion........................................................................................................................5
References.........................................................................................................................6
Appendix...........................................................................................................................7

Finance
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Introduction:
This is the case of sun Microsystems and Oracle. In the case, the Oracle is willing to
acquire the business and stock of sun Microsystems. In the report, financial and non-financial
in has been gathered to evaluate the best price for the oracle to offer to Sun Microsystems.
The report mainly focuses that whether the merger is a good option or not as well as it
concentrates on the best price and strategically benefits of the business.
Good fit for oracle:
On the basis of the evaluation, it has been found that the Sun Microsystems would be
a better option for the oracle as it would offer huge return to the company as well as it would
also help the oracle to meet the common objectives quickly. The company would have to pay
lower and the estimated profit of the company would be huge. As well as, the diversification
would help the business to grab more market (De Treville & Trigeorgis, 2010). Thus, it could
be said that the Sun Microsystems is a good fit for the Oracle.
Approaches:
For evaluating the worth of the Sun Microsystems, terminal values of the business has
been calculated along with the future cash flows and the DCF valuation model. These
approaches have been followed to measure that whether the acquisition would be a better
option for the company or not. The value of the sun Microsystems have been calculated
through few assumptions as well such as the net working capital of the business would
improve by 5% per annum (Madhura, 2015). The capital expenditure would not take place in
next year etc.
These approaches have helped the analyst to reach over a result about the real worth
of the company and each stock of the company. It has been measured that the main
approaches to reach over a conclusion is DCF calculations, terminal values, future cash flow,
sensitivity analysis, share valuation model etc.
DCF valuation:
DCF valuation model is a valuation model which is used by the companies to estimate
the investment attractiveness opportunities. Discounted cash flow analysis takes the help of
future free cash flows of an organization to project and discount them through using the

Finance
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required annual rate of the business to reach over the present value estimates of the business
(Higgins, 2012). In this case, the DCF valuation model has been applied and the following
result has been got:
a. The required rate of return on acquisition of sun Microsystems have been calculated
and it has been found that the discrete cash flow growth of the business is 7.85%
however, if we talk about the permanent growth rate of the country than it is 3.76%.
So, it could be said that the required rate of return would be higher than the permanent
growth rate of the economy.
b. The base cash flow of the business has been forecasted through measuring the last
year cash flows and the future prediction on the cash flows of the business. The case
and the calculations explain that the base cash flow of the business is $ 739.35.
c. Further, the terminal value represents the future cash flows of the business in the asset
valuation model. It is the present value of future cash flows of a business. Through the
calculations, it has been measured that the terminal cash flows of the business of
future 10 years would be $ 78,203.70 (Bai, Wang & Sapiro, 2010).
d. Equity value explains the total market value of the stock of the business in current
scenario. It evaluates the overall performance of the business and explains that the
stock price of the business should be this rather than the current value. On the basis of
the calculations, it has been measured that per share value of the Sun Microsystems’s
share must be $ 19.70 which is quite higher than the current stock price and it
explains that the stocks of the company are undervalued.
Multiple analyses:
The DCF valuation model has been applied on the business to measure that whether
the stock price offered by the Oracle limited is better or not. The DCF valuation model has
been applied on the sun Microsystems and it has been measured that per share value of the
Sun Microsystems’s share must be $ 19.70 which is quite higher than the current stock price
and it explains that the stocks of the company are undervalued (Chandra, 2011). The stock
price offered by Oracle is $ 9.5 (which is even on premium) is quite lower than the actual
stock price of the business. It explains that the offered price is quite beneficial for the Oracle
limited.