Case Study: Mergers And Acquisitions - Finance - Assingment

675 words - 3 pages

FM422 PS5
Submitted by Selenge Biset Eker & Sonia Kasprzak
1) To find out whether the stock price is fairly valued, we will first calculate the total
equity value and then divide it by the number of shares outstanding (9.3M). To
calculate total equity value, we will first calculate total enterprise value and then
deduct total debt (107.5M as it can be seen from exhibit 3) and add excess cash.
(26M) Total Enterprise value is equal to the present value of all future cash flows. So
the starting point will be to calculate the PV (FCF).
We calculated the discount rate using CAPM where r=MRP*Firm Beta+Risk Free Rate
Next we calculated the total enterprise value by taking the present value of all future cash
flows. For year 13, we calculated a termination value where FCF13 is 12.6, growth rate is
assumed to be 4%, and r is 11.0% per CAPM above.
We used the perpetuity formula.
We then calculated the share price per the above formula chain and found that our valuation
model returns us with 7.65? per share, which is lower than the 13.8? stated in the case.
Therefore we think that the share price is around 45% overvalued.
Q2) Valuation by Comparables
Valuation by comparables is helpful as it offers us a quick and a great complement to a
fundamental valuation.
When calculating the relevant multiple, in our case the EV/EBIT, we can notice how
values change for a different value of EBIT. This was a vital observation for when
trying to compute/estimate the best multiple to derive the multiple most suitable for
Tottenham. In our method, once we calculated the multiple for the clubs where data
were available, and then sorted in the EBIT descending values, we noticed a big
degree of similarity between the Tottenham club and Newcastle. Therefore we
decided to assign weights to best reflect the value of the multiple when trying to
derive the EV for Tottenham. We decided that because it is the most reflected by
previously mentioned Newcastle, it received the highest weight of 95% w...

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