Saito Solar—Discounted Cash Flow Valuation

The partners of Saito Solar, a privately owned photovoltaic (PV) solar panel manufacturer in Japan, received an unsolicited proposal from an investment bank about their interests in selling the firm. The firm had experienced steady sales decline in recent years, due mainly to intense competition from low-cost solar panel manufacturers from China. However, in 2012, the solar industry in Japan received new signs of life. The threat of radiation from the nuclear plant explosions due to a deadly earthquake in 2011 had prompted Japan to look for alternative energy. On July 1, 2012, the Japanese government implemented a new feed-in-tariff of 42¥/kWh (about US$0.53/kWh) for solar energy. This tariff was almost twice as large of that in Germany and three times of that in China. This incentive was predicted to produce solar energy that would rank Japan as one of the largest in the world in solar capacity.

 The partners of Saito Solar were excited about the investment bank’s solicitation and wanted to find out how much the firm was worth. The cash flow projections incorporating the positive outlook of the Japanese solar industry were provided. The partners discussed valuation using discounted cash flow (DCF) approach, so it is a perfect case to introduce beginner finance students the proper and common way to value a firm using DCF.