P10 Industries Inc. (PX)

[No-dough-go]

A somewhat simplistic attempt at valuing the tax assets.

Assumptions:
- Federal NOL = $250m
- State NOL = $280m
- Discount rate = 10% (for NPV analysis)
- R & D credit = $4.1m (no discount rate applied)
- Federal Tax rates of 15%, 25% & 35%
- NOL's are spread out equally over 3,5,10 & 20 years.
- State tax rate = 3%
- O/S = 23.1m

Tax asset value (15% federal rate)
Day one = $50m equates to a share price of $2.16
3 years = $42.15m equates to a share price $1.82
5 years = $38.9m equates to a share price of $1.68
10 years = $32.3m equates to a share price of $1.40.
20 years = $23.64m equates to a share price of $1.02

Tax asset value (25% federal rate)
Day one = $75m equates to a share price of $3.25
3 years = $62.87m equates to a share price $2.72
5 years = $57.86m equates to a share price of $2.50
10 years = $47.66m equates to a share price of $2.06
20 years = $34.28m equates to a share price of $1.48

Tax asset value (35% federal rate)
Day one = $100m equates to a share price of $4.33
3 years = $83.6m equates to a share price $3.62
5 years = $76.8m equates to a share price of $3.32
10 years = $63.03m equates to a share price of $2.73.
20 years = $44.92m equates to a share price of $1.94

Further assumptions are that the company being acquired has a value equal to the purchase price and that the investors are taking equity positions instead of debt positions. Also, this doesn't take any reinvestment of capital into account which would presumably increase the return.

It appears that $1.02 is the worst case and $4.33 the best case but several factors can cause those numbers to change such as paying a premium for the company which is, in effect, a self-imposed devaluing of their NOL's. Other things that could affect the valuation are the discount rate, NOL amounts (should be slightly higher since they continue through the closing).