32 Inaddition,Segoviaowns15%ofLatinWorks,arecord
andCDcompany.Theseholdingshavebeencategorized as
minority passive investments, and the dividends from the
investmentareshownaspartofSegovia’snetincomebutnot
as part of its operating income. LatinWorks reported
operatingincomeof$75milliononcapitalinvestedof$250
millioninthecurrentyear;thefirmhas$100millionindebt
outstanding. We will assume the following:
- The cost of capital for Segovia Entertainment,
withoutconsideringits holdingsineitherSeville or
LatinWorks, is10%. Thefirmis in stable growth,
with operating income (again not counting the
holdings) growing 5% a year in perpetuity. - SevilleTelevisionhasacostofcapitalof9%andit
also is in stable growth, with operating income
growing 5% a year in perpetuity. - LatinWorkshasacostofcapitalof12%anditisin
stablegrowth,withoperatingincomegrowing4.5%a
year in perpetuity. - Noneofthefirmshasasignificantbalanceofcash
and marketable securities. - The tax rate for all of these firms is 40%.
We can value Segovia Entertainment in three steps:
1.ValuetheequityintheoperatingassetsofSegovia,without
countingany of theholdings. To dothis, wefirst haveto
cleanse the operating income of the consolidation.