Recreational marijuana sales are at all time highs (sorry) and the California budget is looking better! The Governor has decided NOT to sell CSUSM (also, the bid prices were too low). Instead, Californians have decided to value education more. State Planners have now come to him with a proposal to buy some school up north called Pepperdine University and make it a new "CSU-Pepperdine". So, now the question has been turned around - should the State of California BUY Pepperdine? (Hint: Capital Budgeting...) [1] Looking only at cash flow from tuition and keep it running as a school, what would be a very rough "reasonable" price to pay for Pepperdine? Explain WHY and HOW (in Finance 302 terms, other non-finance 302 discussion will be ignored) you got at that price. [2] The Guv wants to get an IRR of at least 10%. Then, what price can he very roughly offer? Explain. [3] WHY and HOW you got to that price. [4] What assumption did you make about interest rate and why? [5] What does it tell you about the deal NPV? [6] The "buyer" would be the CSU system, what are your thoughts on the WACC for the Cal State University (CSU) system? How and why it should be, and if there is a better alternative route the Governor can use to finance the purchase bid? [7] Bonus: Any other Finance 302 tools and techniques or considerations to keep in mind? 2020 2019 (35,784) $ 27,374 26,319 600 21,147 700 (1,076) (28,482) 3,902 (5,218) (78) 374 23,646 (10,618) 4,320 (4,389) (64) 3 (37,215) (1,096) 5,376 (812) 12,382 (541) 539 924 (12) (4,109) (672) (3,491) 864 (4,143) 11,363 719 8,114 208 19,292 Cash flows from operating activities Change in net assets Adjustments to reconcile change in net assets to net cash and cash equivalents provided by operating activities Depreciation and amortization Provision for doubtful accounts Gain on early extinguishment of debt Non-cash gifts Actuarial adjustment of trust and agency obligations Contributions restricted for long-term investment Income restricted for long-term investment Loss on disposal of property, facilities, and equipment Net realized and unrealized losses / (gains) on investments Change in assets and liabilities Student receivables Other accounts receivable Prepaid expenses, inventories and other assets Beneficial interests and contributions receivable, net Accounts payable and accrued liabilities Accrued salaries and wages Student deposits, advance payments, and deferred revenue Asset retirement obligations Net cash and cash equivalents (used in provided by operating activities Cash flows from investing activities Proceeds from sales of investments Purchases of investments Purchases of property, facilities, and equipment Student loans repaid Student loans issued Net cash and cash equivalents (used in) investing activities Cash flows from financing activities Proceeds from contributions restricted for long-term investment Income restricted for long-term investment Principal received on issuance of long-term obligations Principal payments on long term obligations Net change in bond issue costs (Decrease) / in increase in U.S. government-funded student loans Investment activity on annuities Payment of trust and agency obligations Net cash and cash equivalents provided by (used in) financing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental cash flow information Accued capitalized asset additions Cash paid during the period for interest 339,002 (445,416) (54,330) 3,232 (1,528) (159,040) 280,704 (251,994) (37,901) 3,281 (1.482) (7.392) 6,156 64 (3,350) 6,720 78 223,505 (71,510) (507) (4.427) (4.463) (4.946) 144,450 (18,699) 156,553 242 (1,901) (4.671) (3.460) 8,440 148,113 $ 137,854 $ 156,553 $ $ 18,270 19,143 $ $ 4,824 17,345 Recreational marijuana sales are at all time highs (sorry) and the California budget is looking better! The Governor has decided NOT to sell CSUSM (also, the bid prices were too low). Instead, Californians have decided to value education more. State Planners have now come to him with a proposal to buy some school up north called Pepperdine University and make it a new "CSU-Pepperdine". So, now the question has been turned around - should the State of California BUY Pepperdine? (Hint: Capital Budgeting...) [1] Looking only at cash flow from tuition and keep it running as a school, what would be a very rough "reasonable" price to pay for Pepperdine? Explain WHY and HOW (in Finance 302 terms, other non-finance 302 discussion will be ignored) you got at that price. [2] The Guv wants to get an IRR of at least 10%. Then, what price can he very roughly offer? Explain. [3] WHY and HOW you got to that price. [4] What assumption did you make about interest rate and why? [5] What does it tell you about the deal NPV? [6] The "buyer" would be the CSU system, what are your thoughts on the WACC for the Cal State University (CSU) system? How and why it should be, and if there is a better alternative route the Governor can use to finance the purchase bid? [7] Bonus: Any other Finance 302 tools and techniques or considerations to keep in mind? 2020 2019 (35,784) $ 27,374 26,319 600 21,147 700 (1,076) (28,482) 3,902 (5,218) (78) 374 23,646 (10,618) 4,320 (4,389) (64) 3 (37,215) (1,096) 5,376 (812) 12,382 (541) 539 924 (12) (4,109) (672) (3,491) 864 (4,143) 11,363 719 8,114 208 19,292 Cash flows from operating activities Change in net assets Adjustments to reconcile change in net assets to net cash and cash equivalents provided by operating activities Depreciation and amortization Provision for doubtful accounts Gain on early extinguishment of debt Non-cash gifts Actuarial adjustment of trust and agency obligations Contributions restricted for long-term investment Income restricted for long-term investment Loss on disposal of property, facilities, and equipment Net realized and unrealized losses / (gains) on investments Change in assets and liabilities Student receivables Other accounts receivable Prepaid expenses, inventories and other assets Beneficial interests and contributions receivable, net Accounts payable and accrued liabilities Accrued salaries and wages Student deposits, advance payments, and deferred revenue Asset retirement obligations Net cash and cash equivalents (used in provided by operating activities Cash flows from investing activities Proceeds from sales of investments Purchases of investments Purchases of property, facilities, and equipment Student loans repaid Student loans issued Net cash and cash equivalents (used in) investing activities Cash flows from financing activities Proceeds from contributions restricted for long-term investment Income restricted for long-term investment Principal received on issuance of long-term obligations Principal payments on long term obligations Net change in bond issue costs (Decrease) / in increase in U.S. government-funded student loans Investment activity on annuities Payment of trust and agency obligations Net cash and cash equivalents provided by (used in) financing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental cash flow information Accued capitalized asset additions Cash paid during the period for interest 339,002 (445,416) (54,330) 3,232 (1,528) (159,040) 280,704 (251,994) (37,901) 3,281 (1.482) (7.392) 6,156 64 (3,350) 6,720 78 223,505 (71,510) (507) (4.427) (4.463) (4.946) 144,450 (18,699) 156,553 242 (1,901) (4.671) (3.460) 8,440 148,113 $ 137,854 $ 156,553 $ $ 18,270 19,143 $ $ 4,824 17,345