Tottenham Case Solutions

Case Study 1- Tottenham Hotspur

Question 1

Assumptions

Revenue will grow at 9% for 12 years and 4 % afterwards as given in the case

Operating expenses related to payroll will increase with 10% for 12 years and then with 4%. Operating expenses for the stadium will constantly grow at 4 %

Tottenham Hotspur has negative net working capital. However, this is not unlikely for companies, which have a lot of deferred revenue such as football clubs. As Tottenham sells season tickets in the beginning of the year they recognize those transactions as deferred revenue. Based on this the negative net working capital is not unusual and the assumption is that it will continue to become more negative in line with revenue growth rate at 9% for the next 12 years and 4 afterwards.

Both CAPEX and the depreciation associated with it are expected to grow with constant 4% from its levels of 3.3 and 2.2 respectively.

As the company BETA debt is 0 this means that the company debt has no systematic risk therefore the required return on the debt is assumed to be equal to the risk free rate. Required rate on equity is estimated through CAPM and it is equal to:〖 R〗_f+B_e*Market risk Premium = 4,57%+1,29*5%=11,05%. The appropriate discount rate is estimated with the WACC formula WACC= D/V*r_d*(1-tax)+E/V*R_e=0,12*0,0457*(1-0,35)+0,88*0,1105=0,1005

Company Net Debt is estimated by subtracting the excess cash from the long term debt and it is 16,16

Estimations for EBIT and Tax Rate are given in the case study.

The Table Summarizes the calculations of the enterprise value: The Terminal Value is estimated by calculating the cash flow in 2020 as a growing perpetuity with growth rate 0,04 and the it is discounted