6712 Words27 Pages

FM421 – Applied Corporate Finance
Case Study: Tottenham Hotspur plc
25th January 2013
201128545 201125438 201121479 201119785 201130179 201129057
1) Valuation based on Discounted Cash Flow
In order to perform a DCF approach we first calculated the WACC and then the FCF. WACC WACC= rd(1-t)*[D/(D+E)] + re*[E/(D+E)]
t = 35% (from the case, exhibit 1) rd= rf= 4.57% (exhibit 1, assuming β of debt = 0) Net Debt/EV=0.11 (EV = Market Value of Equity + Net Debt) re= rf+βe*(rm-rf)= 4.57%+ 1.29*5%=11.02 (under CAPM assumptions) [E/(D+E)]= 1-0.12=0.88 WACC= (0.0457)*(1-0.35)*0.11 + (0.1102)*0.89= 10.12%
Free Cash Flow FCF= EBIT(1-t) – CAPEX – ΔNWC + Depreciation As EBIT and tax rate are given we have to calculate the ΔNWC. ΔNWC=Inventory + A/R – A/P As accounts receivable and payable are sensitive to sales changes, we assume that A/P and A/R change but their ratio to sales remains constant over time. We assume the same for the ratio of inventory/merchandise sales. (A/P)/Sales= 19.99/74.1 = 0.26977058 (A/R)/Sales= 64.4/74.1 = 0.869095816 Inventory/Merchandise sales= 1.17/5.2=0.225 We then multiplied the ratios for the equivalent factors (sales and merchandise sales) on the pro-forma balance sheet for the years between 2008 and 2020 and found the ΔNWC for every year. Depreciation and CAPEX are given for 2007 and we know that they grow at 4% per year. We computed the value for the CAPEX between 2008 and 2020 while depreciation values were taken from exhibit 5.
Discounted Free Cash Flow We computed the Present Value of the future cash flows including the Terminal Value (estimated at a given growth rate of 4%) using the WACC=10.12%. We found that the total value of Tottenham is equal to $137M. Finally we divided this value by the total number of shares (9.29M). The share price implied by our DCF valuation is of $14.74. This would imply that the company is

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