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NANTUCKETS NECTAR

Question 1
Determine the DCF value of Nantucket Nectars as at the end of 1996.
Justify the discount rate used in the valuation from the range of 12% 18%.

Discou
nt Rate
12%
14%
16%
18%

Firm Value
Terminal Value
4%
6%
72,1
93,2
30
10
54,63
66,2
8
14
43,1
50,26
91
6
35,1
39,8
79
18

8%
135,3
70
85,5
09
60,8
79
46,3
14

Average Value of Nantucket Nectars


$65,226,419.70
The case did not provide quantitative information on comparable
companies so it is impossible to calculate the WACC for Nantucket
Nectars. however I believe the 12-18% was used in the case as it probably

represents the band of equity return in the US market during that period
considering that Nantucket Nectars was unlevered at the time of the
valuation.
Question 2
Should the founders cash out at this time by selling the company?
The Criteria for the founders are as below.
i.
ii.
iii.
iv.
v.
vi.

Expand into supermarket channels


Increase brand awareness
Grow Company
Keep Culture
Expand Geographically
Employee focused

The options available to the founders are as below along with the pros &
cons of each option.
IPO
Pros
Instant Capital Funding
Managers remain in control
Brand awareness increases
Retain control over employment

Cons
Managers have to report to shareholders
Risk losing culture through focus on short
term goals
Additional legal regulations and constraints

Retain status quo


Depreciation
Working Capital Req.
Capital Expenditure
FCFF

Sell Company

I believe of the three options available to the Nantucket Nectars founders,


going public is the most reasonable option as it best suits their laid down
criteria as it enables them the instant funding to expand into supermarket
channels, advertise to increase brand awareness, finance the growth of

the company while enabling them control over employment and company
culture.
Question 3
Advise on the possible sale strategy giving due consideration to all the
facts of the case.
The sale strategy available to the founders includes:
i.

ii.

iii.

A Public Bidding
This is probably the best way to determine the market value of
the firm and will possibly lead to the highest possible price. This
also helps to increase the brand awareness of the firm adopting
this strategy will most likely lead to the loss of the brand equity.
Secret Bidding
This is unlikely to lead to the highest price attainable but the
founders might be able to negotiate beneficial terms for
employees while also staying out of the public space giving
customers the impression the firm is still independent.
Presenting to Individual Buyers
Selling price would most likely be lower than market value but
the firm should be able to keep its corporate culture while the
management will ensure employees keep jobs.

I believe the founders should present the firm to individual buyers if they
decide to sell. Although this strategy is unlikely to generate the highest
possible sale value, it gives the owners some negotiating leverage that
may help keep the company on the track of the vision they have for it.