Finance of Media Assignment - University Finance Module Solution

This assignment solution for the Finance of Media course comprehensively addresses a series of questions related to financial concepts. It begins by evaluating the suitability of equity versus debt financing for startup companies, emphasizing the implications for profitability and growth. The document then explores topics such as stock volatility, corporate bonds, and the impact of stock purchases on a company's balance sheet. It further delves into capital structure decisions, analyzing the rationale behind using equity over debt for launching a streaming video app. The solution presents calculations for corporate bond yields, market capitalization, and the effects of impairment charges. Additionally, it provides detailed financial analyses, including EBITDA calculations, and evaluates the financial health of a company. The assignment concludes with a critical assessment of a company's capitalization strategy, offering insights on prudent financial management and loan repayment strategies, along with recommendations for improving the company's financial position.

Running head: FINANCE OF MEDIA
Finance of Media
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Table of Contents
Question 1:.......................................................................................................................................3
Question 2:.......................................................................................................................................3
Question 3:.......................................................................................................................................3
Question 4:.......................................................................................................................................4
Question 5:.......................................................................................................................................4
Question 6:.......................................................................................................................................4
Question 7:.......................................................................................................................................5
Question 8:.......................................................................................................................................5
Question 9:.......................................................................................................................................5
Question 10:.....................................................................................................................................5
Question 11:.....................................................................................................................................6
Question 12:.....................................................................................................................................6
Question 13:.....................................................................................................................................6
Question 14:.....................................................................................................................................6
Question 15:.....................................................................................................................................6
Question 16:.....................................................................................................................................7
Question 17:.....................................................................................................................................7
a) Implied interest rate on Shoot’s debt:..........................................................................................7
b) Shoot’s EBITDA in 2017:...........................................................................................................8
c) "net" refers to after Property/Equipment:....................................................................................8
d) Describing how, in retrospect, you might have capitalized Shoot more prudently:...................9
e) Stating the opinion on the loan approaching date:......................................................................9

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f) Describing the internal consideration and analysis:.....................................................................9
Reference and Bibliography:.........................................................................................................11

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Question 1:
True
Question 2:
The information provided in the above case is relevantly true, as start-up or emerging
growth companies require equity financing, as it does not hamper their overall profitability
conditions. Moreover, the emerging companies mainly require high level of income from
operations, while the equity financing would only fuel their growth and allow them to achieve
higher growth rate. However, the use of debt financing would directly increase their finance cost
and reduce the actual profits that could be used by the company to fuel its further growth. Start-
up and emerging companies mainly utilise all their profits as the source of finance to further
increase their operations (Minsky 2015).
Question 3:
Insufficient data, the case scenario directly indicates that the current company has high
current assets, where no information is provided regarding its bankruptcy conditions. The current
valuation of 10 million in current assets and only 1 million in long term liabilities indicates that
the company will not fall under insolvency conditions. However, we are not able to gather
relevant information regarding the other legal obligations and short-term liabilities that is being
held by the company over the period.

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Question 4:
The publicly traded stock has no certainty of the returns, which is mainly provided by the
corporate bonds of the organisation. This is the main reason behind the volatility in the prices of
the stock in comparison to the corporate bonds. This changes in the volatility conditions of the
stock due to the risk attributes such as beta mainly alters the overall share price of the
organisation. The valuation of corporate bonds are mainly based on the credit rating, yield and
coupon rate
Question 5:
False, as Facebook could only get the capital during their IPO imitation, after the issue of
shares the transaction is directly made between the traders and exchange. The share purchase
will not go to the balance sheet of Facebook, as the company already has the capital that was
generated during the IPO in their balance sheet.
Question 6:
True, the main focus of the organisation is to build streaming video app, which will
require funding from appropriate sources. Moreover, equity financing allows the organisation to
take adequate financial breath while making investment decisions. On the other hand, the debt
financing would directly increase the level of payments that needs to be conducted by the
organisation. On the contrary, Brooks (2019) argued that debt financing would allow the
organisation to minimise the tax expenses and reduce cash outflows. Thus, Company B needs to
seek equity funding rather than debt to complete the launch of streaming app.

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Question 7:
Insufficient data, there is relevantly no sufficient data to support the claims that
companies should avoid debt financing. In addition, debt financing can be considered as the
major contributors to the capital structure of the organisation, as it diversifies the risk and allows
the organisation to minimise its cost of capital level.
Question 8:
Is a slice of ownership in a company
Question 9:
Particulars Value
Coupon
amount 6
Coupon rate 6%
Current price 90
Face value 100
Yield 4%
The calculation has directly indicated that the current yield of the corporate bonds is
mainly at the levels of 4%, as the current market price is lower than face value of the bond.
Question 10:
After bond’s maturity the organisation or government issuing the bold needs to transfer
the whole face value of the bond and remaining coupon payments to the investors. Hence, after

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the maturity the borrower repayment the borrowed amount and the loan provider receive the due
payment.
Question 11:
True
Question 12:
Particulars Value
Market capitalization 400 million
Net debt 200 million
Total value 600 million
Sales required 1800 million
The calculation has directly indicated that the total sales required for company is at the
levels of 1800 million.
Question 13:
Creates a non-cash expense that flows through the income statement if the impairment
charge is taken
Question 14:
True, as with the help of acquisition currency the management can appropriately gather
the required funds to acquire another organisation.

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Question 15:
Theoretically, the company providing the 6x EV/EBITDA ratio is considered a better
investment values, as it represents the comprehensive P/E ratio of an organisation. The
companies having value of 7x EV/EBITDA in comparison to 6x EV/EBITDA direct depicts
about the current financial position to their investors, where investments are only conduced on
the stock, which has higher valuation. However, the valuation of 6x EV/EBITDA indicates that
the company is undervalued, where investment in such stock could lead to gather the income and
capital growth. Therefore, it could be assumed that the current financial performance of the
organisation can be analysed using EV/EBITDA calculations.
Question 16:
Particulars Value
Asset sales $ 75,000,000
Outstanding debt $ 60,000,000
Accumulated unpaid interest $ 3,000,000
Accrued employee wages $ 4,000,000
Preferred stock $ 2,000,000
Accounts payable $ 7,000,000
Total proceeds $ (1,000,000)
Common stock outstanding 2,000,000
Value of each share $ (1)
The above calculation directly indicates that current value of each share after supporting
its financial obligation is mainly negative -$1 per share.

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Question 17:
a) Implied interest rate on Shoot’s debt:
Particulars Value
Notes payable $ 1,220,004
Interest expenses $ 85,000
Implied interest rate 6.97%
The overall implied interest rate is mainly at the levels of 6.97%, which has been
calculated by dividing the interest expenses of the company with the notes payables. The implied
interest rate indicates ha the organization needs to pay the interest on each year without any fail.
b) Shoot’s EBITDA in 2017:
Particulars Value
Operating income $ (241,830)
Depreciation $ 201,228
EBITDA $ (40,602)
The above table provides information regarding the overall Earnings before interest, tax,
depreciation and amortization. This directly indicates that the current financial performance of
the organization is relevantly low, as it incurs loss due to high cash outflows.
c) "net" refers to after Property/Equipment:
The net is directly referenced as the value of property/equipment after accommodating
for the depreciation. The property/equipment is subject to deprecation, which needs to be
detected for providing the fair value of assets for the organization. The depreciation calculation

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is conducted by using diminishing value or straight-line method for identifying the correct value
of property/equipment.
d) Describing how, in retrospect, you might have capitalized Shoot more prudently:
The capitalization condition of the organization is not appropriate, as the management
focuses on debt rather than equity to gather the required funds for operations. In addition, the
evaluation also indicates that the current losses that is incurred by the organization is due to the
high debt and interest payment that is been maintained by the management. Change in the
current capital structure from debt to equity could help in improving the financial position and
reduce the chance of interest payments. Gitman, Juchau and Flanagan (2015) stated that
accumulation of debt increases the obligations of an organization, which in turn hampers the
actual financial position and push it close to insolvency conditions.
e) Stating the opinion on the loan approaching date:
The loan payments need to be conducted by the management, as it is a financial
obligation, which needs to be met or the assets of the company will be sold. Hence, the fast-
approaching deb payment can be met by the issuing of shares, which might allow the
organization to mitigate the interest payments. Moreover, the company’s expenses are also high,
which can be minimized by the management for improving their profitability structure.
f) Describing the internal consideration and analysis:
No, the offer will be not accepted, as the valuation of the company is higher than
$25,000. The actual loss of the organization is mainly at the levels of -$125,727, which can be

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controlled by adequately minimizing the salary and G&A expenses. The company’s main
problem is the high debt, where reducing the debt combination and increasing the equity
composition in the capital structure could directly increase the valuation of the company higher
than $25,000. Thus, company should not be sold at only $25,000.

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Reference and Bibliography:
Arcand, J.L., Berkes, E. and Panizza, U., 2015. Too much finance?. Journal of Economic
Growth, 20(2), pp.105-148.
Brooks, C., 2019. Introductory econometrics for finance. Cambridge university press.
Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access to
finance. Strategic management journal, 35(1), pp.1-23.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Minsky, H.P., 2015. Can" it" happen again?: essays on instability and finance. Routledge.
Shoup, C., 2017. Public finance. Routledge.