2398 Words10 Pages

Valuation Case
Tottenham Hotspur, Plc.
1a – the value of Tottenham Hotspur based on the projections given in the case using a DCF analysis
Weighted Average Cost of Capital (WACC)
In this paragraph we discuss the WACC of Tottenham Hotspur. In the process of calculating WACC and determining the value of the company we assume that we are valuing the company from the perspective of the marginal investor.
Value of debt
We use the book value of all interest bearing debt at 31-12-2007 to estimate the value of debt, this equals 43,08 million. We miss essential information like the interest rate and maturity of the debt to calculate the market value of debt.
From the book value of debt and the interest expenses over 2007 we estimate the cost of debt: 2,26/43,08 = 5,25 %. This is 0.7% more than the risk free rate. This seems reasonable when considering the low leverage ratio of the firm and high cash reserves of the firm, on the other side the interest coverage ratio of Tottenham of 1,24 is pretty low. We assume that the amount of debt has been constant over 2007. A better option to calculate cost of debt would be to use a synthesized rating based on the interest coverage ratio and use the corresponding default spread, but unfortunately we do not have data of these spreads for 2007.
We use the market value of equity to estimate the weight of equity. The market capitalization of the firm was 128,2 million on 31-12-2007 (we assume that this is the date of the balance sheet, since this isn’t mentioned in the case). From this we can calculate the following ratio’s:
debt/equity = 0,31 debt/(debt+equity) = 0,24 equity/(debt+equity) = 0,76
In calculating these ratio’s we use gross debt instead of net debt, because in our opinion the debt and cash of the firm

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