Business Case Studies & Business Publications

Alliance Concrete: Just One More Thing

Lipson, Marc L.

Case

Alliance Concrete: Just One More Thing

Lipson, Marc L.

F-1535 | Published July 9, 2007 | 5 pages Case

Collection: Darden School of Business

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After having negotiated major financial and operating decisions with its parent company, the CFO of this small ready-mix concrete subsidiary is asked to provide a valuation of the subsidiary. A one-year forecast of financial statements is provided along with information on long-term operating expectations and capital costs. This otherwise straightforward valuation exercise is enhanced by (1) the need to select between the parent- or comparable-firm costs of capital, (2) sufficient guidance to perform an illuminating sensitivity analysis, and (3) a sufficiently clear and rich context in which to illustrate the linkages between operating and financing choices. A teaching note and instructor and student Excel spreadsheets are available.

The learning objectives for this case are to develop a valuation of a privately held division including a forecast of cash flows and calculation of an appropriate discount rate; to illustrate the sensitivity of valuations to assumptions; and to explore the economic drivers of terminal value calculations based on perpetual growth.