CORPORATE FINANCE ASSIGNMENT

Sky Television versus British Satellite Broadcasting Your job is to analyze Sky’s 1988 entry decision from an investment perspective – i.e., it is June 1988, and you have to make a recommendation to Murdoch: either “enter”, or “stay out”. You will need to use cashflow projections of the sort shown in Exhibits 6 and 7. These are projected cashflows under the assumption that both Sky and BSB remain in the market. Unfortunately, the exhibits in the case are full of errors and inconsistencies (e.g., Sky and BSB market shares do not sum up to 100% in several years.) To make your life easier, attached is a cleaned-up version of Exhibits 6 and 7 to these questions. You should use this version as a starting point for your analysis. In all scenarios that you will consider, assume that cashflows after 1999 remain constant at the 1999 level. 1) What are Sky TV and BSB’s relative strengths and weaknesses? 2) What is the NPV of entry by Sky, assuming BSB remains in the market, and using a discount rate of 16%? 3) What is the NPV of entry by Sky, assuming BSB exits in 1990? (To do this, you need to rework the spreadsheet, assuming that Sky has 100% market share from 1990 onwards.) 4) How would you expect that BSB might respond to entry by Sky? Is BSB in fact likely to exit? What does your answer depend on? 5) What should Murdoch do?