Tottenham Hotspur plc Case
pdf
keyboard_arrow_up
School
Brigham Young University *
*We aren’t endorsed by this school
Course
401
Subject
Finance
Date
Jan 9, 2024
Type
Pages
5
Uploaded by SuperHumanGiraffe808
1
Advanced Financial Management
Professor Chris Hair
13 December 2023
Tottenham Hotspur Case
1. Calculate the enterprise value and corresponding stock price of Tottenham using the method of
multiples. Use an EV/Revenue multiple and at least one other multiple. Be creative.
Using the method of multiples, we derived an
Enterprise Value of £129.11
and a
stock price of £12.16
.
Although we have seven given teams to use as comparables, we selected Newcastle United, Everton, and
Aston Villa considering their teams’ similarities in revenue and average points to Tottenham.
Additionally, these three teams were a part of the bottom three teams, which were “relegated” or sent to a
lower division, indicating far lower revenues than their competitors.
Using the provided information, we calculated the respective EV/Rev and EV/Avg Points multiples for
each comparable team because enterprise value tends to vary more with changes in revenue and average
points. We then took the average of all the EV/Rev and EV/Avg Points multiples to find those multiples
for Tottenham. EV/Rev was 1.9, and EV/Avg Points was 2.34. Using these multiples, we took the product
of EV/Rev and Tottenham’s revenue to get an enterprise value of £138.4 (1.9*74.7), as well as the product
of EV/Avg Points and Tottenham’s average points to get an enterprise value of £119.9 (2.34*50.9). We
then average these two enterprise values to get a singular
Enterprise Value of £129.11M.
To calculate the stock price, we used the formula EV = Equity + Debt - Excess Cash and the values of
2007 debt (£43.1) and excess cash of £26.9 to back out equity.
Equity = £112.93M
(129.11-43.1+26.9).
We divided the outstanding shares by 9.29 to arrive at a
stock price of £12.16
.
2. Calculate the enterprise value and corresponding stock price of Tottenham using a DCF
approach.
Leveraging Table A's financial data, we computed Tottenham Hotspur plc's WACC. The Asset Beta (Ba)
was determined as 1.072 using the equation
Ba = Be*(E/V) + Bd(D/V)
. Applying the cost of capital
equation
Ra = Rf + Ba(MRP
), we arrived at a
WACC of 9.54%
, where Ra is the required rate of return.
For NOPAT, we utilized the equation
EBIT * (1 - Tax Rate)
. Starting at £2.2M in 2007, depreciation
grew at 4% annually. Capital Expenditure (CAPEX) for 2007 stood at £3.3M, with an expected 4%
growth rate. Predicting Net Working Capital (NWC) using the percentage of sales method, we found the
initial NWC to be -£1.53M in year 0, factoring in a 9% revenue growth rate.
Investment in working capital (
△
NWC) was calculated through the formula
NWC(year t-1) -
NWC(year t)
for 2007-2020. Free Cash Flows for 2007-2020 were computed as
Net Profit +
Depreciation – CAPEX –
△
NWC
. Terminal Value in 2020, with a 4% growth rate, was calculated using
the equation
[Cash Flows (year 2020) * (1 + Terminal Growth Rate)] / (WACC - Terminal Growth
Rate)
to obtain £204.94M.
The Present Value (PV) of Free Cash Flows and Terminal Value was determined using the formula
Cash
Flows / (1 + WACC)^year
, resulting in an
Enterprise Value of £111.5M
. Adjusting for Debt and Excess
Cash,
Equity Value was £95.3M.
Dividing by the 9.29M outstanding shares, we obtained a
stock price
of £10.26
(£16.41).
3. Calculate the enterprise value and corresponding stock price of Tottenham with the new stadium.
Should they build the new stadium?
Assumptions:
▪
Attendance revenue experiences a 40% increase starting in year 3
▪
Sponsorship increases by 20% starting year 3
▪
Stadium operating expenses increases by 14% starting year 3
The CAPEX outlay for the new stadium totals £125M over the initial two years. We have retained the
initial maintenance CAPEX from the original DCF in our financial considerations. Commencing in the
third year, a
£25M depreciation expense
on the stadium contract is incurred, following a 10-year
straight-line depreciation schedule. The Free Cash Flow (FCF) computation involves aggregating the
original depreciation on maintenance CAPEX and the new depreciation related to the stadium. NWC
changes specific to the new stadium have been factored in, utilizing a methodology aligned with the
original DCF but adjusted to accommodate the anticipated revenue surge.
The Terminal Value, estimated at
£686.6M,
using the above formula mentioned in Question 2. The
present value of the Terminal Value was determined using the same methodology applied to other cash
flows.
The
Enterprise value stands at £150.85M
, translating to a revised
equity value of £134.66M
and,
consequently, a recalibrated
stock price of £14.50
. This marks a substantial increase of £4.24, attributed
to the enhanced seating capacity of the new stadium leading to augmented attendance and sponsorship
revenues. Constructing the new stadium emerges as a strategic move to optimize shareholder profit, and
we strongly recommend Daniel Levy to approve this project.
4. Calculate the enterprise value and corresponding stock price of Tottenham if they sign the new
player. Should Tottenham sign the new player?
Assumptions:
▪
Revenue growth attributable to a new player of 5.59%
until the player contract ended in 2018
▪
A player transfer fee of £20M
▪
Player salary was 2.6M in 2008 and grew by 10%
until 2018
▪
Used the same method to adjust NWC as described in question 2, but used new forecasted
revenue values
To derive a revenue growth projection contingent on Tottenham's acquisition of a new player, we
conducted a regression analysis correlating average net goals with average net points. Emphasizing
prudence, we utilized the more conservative 95th percentile values, yielding the equation y = 0.63x +
50.54. This choice was motivated by a comprehensive evaluation of Tottenham's recent performance
relative to competitors. Moreover, a cautious approach was taken due to a perceived optimism bias in
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
projecting a yearly net goal increase of 12, considering the potential adjustment period for new players
integrating into the team, where performance may deviate from initial expectations.
Although a healthy player would contribute a net goal increase of 12, we factored in an 80% probability
of sustained health, resulting in an adjusted net goal growth of 9.6 per season. Applying the regression
equation, we anticipated 56.6 average points in 2008, reflecting an 11% point increase. Consequently,
revenue would surge by twice the points percentage (1% points increase equating to a 2% revenue
increase). However, due to the restricted stadium capacity, Tottenham would only capture 50% of the
revenue benefits from the new player, resulting in a modest 5.59% revenue growth.
With an
Enterprise Value of
£
109.5M
, this translates to a recalibrated
equity value of
£
93.3M
and a
revised
stock price of £10.05
. Our counsel to Tottenham is to refrain from signing a new player without
the completion of the stadium, as this would not fully unlock the revenue potential associated with the
acquisition. Additionally, the stock price experienced a dip from £10.26 to £10.05, failing to generate
shareholder value.
5. Calculate the enterprise value and corresponding stock price of Tottenham if they build the
stadium and sign the new player. Should they build the stadium and sign the player?
Assumptions:
▪
Incorporated the depreciation of both the stadium and the original CAPX depreciation.
▪
Applied the identical assumptions as in question 3 for the growth in attendance revenue,
sponsorship revenue, and stadium operating expenses.
▪
Maintained the same assumptions for player transfer fees and salaries as in question 4.
▪
Total Revenue growth of 5.59% for the years 2008 and 2009 (pre-stadium
▪
Total Revenue growth of 22.35% from 2010 to 2017, attributed to the new stadium enabling
Tottenham to harness additional revenue.
▪
A correlation was established between a 1% increase in points and a 2% increase in revenue.
Anticipating a 22.35% growth, revenue doubled the 11% increase in points explained in question 4.
Our valuation yielded a terminal value of £686.6M, with a present value of £210M. Employing the same
discounting methodology as in prior inquiries, we derived an
Enterprise Value of £225.31M
, leading to a
recalibrated
equity value of £209.13M
and a
revised stock price of £22.51
.
Our recommendation for Tottenham is to proceed with acquiring the new player and constructing the
enhanced stadium. The augmented stadium capacity positions Tottenham to fully capitalize on the
revenue advantages of signing a new player, concurrently elevating stock value and creating significant
shareholder value.
Related Documents
Related Questions
Using the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $22.92 per share. Although you are very much interested in owning
the company, you are concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated from a variety of data sources. The
key values you have compiled are summarized in the following table, E
a. Use the free cash flow valuation model to estimate CoolTech's common stock value per share.
b. Judging by your finding in part a and the stock's offering price, should you buy the stock?
c. On further analysis, you find that the growth rate in FCF beyond 2023 will be 7% rather than 6%. What effect would this finding have on your responses in parts a and b?
a. The value of CoolTech's entire company is $|
(Round to the nearest…
arrow_forward
Using the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for
$7.41 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of the shares, you have decided
to apply the free cash flow valuation model to the firm's financial data that you've accumulated from a variety of data sources. The key values you have compiled are summarized in the
following table, E
a. Use the free cash flow valuation model to estimate CoolTech's common stock value per share.
b. Judging by your finding in part a and the stock's offering price, should you buy the stock?
c. On further analysis, you find that the growth rate in FCF beyond year 4 will be 4% rather than 3%. What effect would this finding have on your responses in parts a and b?
a. The value of CoolTech's entire company is $. (Round to the…
arrow_forward
Using the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered
for $4.61 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of the shares, you have
decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated from a variety of data sources. The key values you have compiled are
summarized in the following table,
a. Use the free cash flow valuation model to estimate CoolTech's common stock value per share.
b. Judging by your finding in part a and the stock's offering price, should you buy the stock?
c. On further analysis, you find that the growth rate in FCF beyond year 4 will be 3% rather than 2%. What effect would this finding have on your responses in parts a and b?
a. The value of CoolTech's entire company is $
Data table
(Click on…
arrow_forward
M2
arrow_forward
Looking for Solution for Question 8:
Your are a finance executive given the job of discussing attractiveness of two acquisition targets. Pick Microsoft and Verizon.
Below are the hypothetical average percentage returns for the two companies- Microsoft and Verizon
MSFT: 4,2,4,6,2,6,4,7,4,1,4,2,6 Verizon: 5,3,3,7,1,8,2,9,1,6,6,3,8
Market: 4,6,3,7,2,9,4,7,1,3,2,8,2
2. Find the standard deviation of the returns for the two companies.
3. Find the standard deviation for the portfolio of the two companies. (With stocks weights being: 70% msft and 30 % Verizon)
4. Calculate Beta for the two companies. (As demonstrated in the class: Run a regression or use the formula using covariance of each stock with the market divided by the variance of market).
5. Which of the companies is more risky in terms of Beta.
6. Which of the companies is more risky in terms of standard deviation?
7. Does portfolio of the two companies show lower standard deviation than individual stock company standard…
arrow_forward
Pls help on this question ASAP
arrow_forward
Exercise 2: You are evaluating the investment in two companies whose past ten years'
return are shown below:
Salalah Mills
Oman Mills
X2
Year
X
1
7
49
4
4
16
81
3
-3
-2
4
36
1
1
5
8
64
25
ΣΧ15
E X? =115
N=
ΣΧ-22
Σχ174
Calculate the Average Return and Risk of each company's return? Which of the two
companies are more risky and why?
arrow_forward
dont uplode images in answer
arrow_forward
Choice best answer please solve this questions
arrow_forward
23 The Hanks Co is considering two projects. Project A consists of building a bee sanctuary on the firm's small parcel of land. Project B consists of building a retail store on on that same parcel. The parcel can accommodate only one of the projects. Which method of analysis is most appropriate for an analyst to employ?
A. Accounting rate of return
B. Profitability index
C. NPV
D. Payback
E. IRR
arrow_forward
Problem 1
It is now 2024. You have been assigned as a financial advisor of a Philippine start-up company They assigned you to value its
existing business had they exited the market 6 years ago, meaning in 2018. Details of the company are as follows:
Futher assume that the company will nat exist beyond 2023, meaning the going concem principle will not apply.
Also assume that the client wants you to use the dividend discount model for this project.
2018
6,458,000.0
2019
7,412,000.0
2020
8,126,000.0
2022
8,941,000.0 9.457.000.0
42.0%
28.0%
30.0%
2021
2023
Sales
Variable expenses
Fixed expenses
Tax Rate
10,025,000.0
40.0%
30.0%
44.0%
30.0%
30.0%
38.0%
40.0%
41.0%
30.0%
29.0%
21.0%
31.0%
25.0%
24.0%
25.0%
After conducting a financial due diligence, you found that:
1.) 2019 sales are inclusive of a 250.000 sales invoice that were in transit as of EOY 2019, thus delivered to the client on 2020, with terms of FOB Shipping Point.
2.) 2020 sales excluded a contract signed for senvices worth…
arrow_forward
A
Beta 1.10
Market Capitalization = 122.548B
Book Value of Debt = 93.21B
Bond Price = 103.10
Interest Rate = 2.75%
Maturity = 20 years
Therefore - PV = -1,031.00; FV = 1,000; PMT = 27.50; N = 20; CPT I = 2.55%
Tax rate 21%
Current One Year Treasury Bill Rate (Risk-free Rate) = 5%
Market Return: Estimated at 8%
Step 1
Calculate the WACC for Deere and Company (DE) given:
Step 2
Step 3
Step 4
Search
What are the weightings for Equity and Debt?
What is the Cost of Equity?
What is the After-Tax Cost of Debt?
What is the WACC?
arrow_forward
Question 3
You are the treasurer of a mid-cap company and you are analyzing two equity
opportunities as potential investments for your working capital of US$100 million. You
are given the following information and can only choose one investment.
Investment A (cash flows in US$millions)
Year
Cashflow
Year
Cashflow
0
Investment B (cash flows in US$millions)
Market Return
-100
Market Variance
0
1
-100
54
1
67
11%
24%
2
28
76
31
2
89
3
98
3
You are also given the following information to aid with your investment decision:
Risk Free Rate
3.50%
98
Investment A (COV/Market)
Investment B (COV/Market)
Discuss and evaluate whether to pick Investment A or Investment B.
4
121
4
176
arrow_forward
Solve and show solution. Do not use excel cell in the solution
arrow_forward
Question 2
You are a senior investment consultant at Mercer Investment Consulting. You have
been appointed by Qatar Investment Authority to pick an investment manager to
oversee a US$1 billion portfolio of Asian Equites. Based on your research you identify
two managers who have made your shortlist. The following data is provided for your
consideration which shows performance over the past ten years:
Manager Actual Av Return Standard Deviation
A
B
12.20%
10.80%
14.00%
(b) What is the alpha for Manager A and B?
11.90%
Beta
1.40
1.00
The risk-free rate is 3.5% and the risk premium for the market portfolio is 6%.
(a) Using the CAPM, calculate the expected returns for Manager A and B.
(c) Which manager would you choose for your client? Justify your answer.
arrow_forward
V Question 8
As the Head of Business Development of Fidelity Venture Capital, a client has presented a
business plan that has the following projected returns for your consideration;
a.
Stock A
Stock B
State of the Economy
Returns
Prob
Returns
Prob
Excellent
32%
0.4
40%
0.2
Worse
-5%
0.4
8%
0.3
Normal
21. %
0.2
25%
0.5
Required:
i. Calculate the expected return for each stock
ii. Calculate the total risk of the client's business for each stock
iii. If your client plans investing equally in each stock, with a correlation coefficient of -0.8,
what is the portfolio return and portfolio risk?
iv. If the beta of the client's business is 0.9 and the risk free rate is 22%, calculate the required
rate of investment if the market risk premium is 4%.
Question 9
arrow_forward
Problem 3
Company TechGear Ltd. is a technology company that manufactures and sells smartphones. They are
currently analyzing their financial structure to understand how changes in sales and financing can
impact their profitability and risk calculating the leverage position. The CFO of TechGear obtained the
following information for the calculation:
Sales:
Fixed Costs:
Variable Costs per Smartphone:
Selling Price per Smartphone:
Interest Expense:
Total Common Shares Outstanding:
Total Preferred Shares Outstanding:
Preferred Dividend Per Share:
Tax Rate
50,000 units
BDT 80,000,000
BDT 15,000
BDT 20,000
BDT 20,000,000
1,000,000
600,000
BDT 10
40%
a. Calculate the Degree of Operating Leverage, Degree of Financial Leverage, and Degree of
Total Leverage for the company.
b.
What would happen to the company's leverage positions if its existing mobile phone sales drop
by 20% due to a new competitor's entry into the smartphone business?
c. Compare and comment on the riskiness of the company…
arrow_forward
Q11
arrow_forward
Ch. 11 Profitabiity Index
Please solve the following and explain in detail.
Calderon Kitchen Supplies is planning to invest $210,000 in a product. The product is expected to generate a net present value of $56,700. The profitablity index is???
arrow_forward
suppose you manage a $200,000 company that consist of the following invest:
A $50,000 beta .095
B $50,000 beta 0.80
C $50,000 beta 1.00
D $50,000 beta 1.20
what is holding of company beta?
arrow_forward
SEE MORE QUESTIONS
Recommended textbooks for you

Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781285867977
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Related Questions
- Using the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $22.92 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated from a variety of data sources. The key values you have compiled are summarized in the following table, E a. Use the free cash flow valuation model to estimate CoolTech's common stock value per share. b. Judging by your finding in part a and the stock's offering price, should you buy the stock? c. On further analysis, you find that the growth rate in FCF beyond 2023 will be 7% rather than 6%. What effect would this finding have on your responses in parts a and b? a. The value of CoolTech's entire company is $| (Round to the nearest…arrow_forwardUsing the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $7.41 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated from a variety of data sources. The key values you have compiled are summarized in the following table, E a. Use the free cash flow valuation model to estimate CoolTech's common stock value per share. b. Judging by your finding in part a and the stock's offering price, should you buy the stock? c. On further analysis, you find that the growth rate in FCF beyond year 4 will be 4% rather than 3%. What effect would this finding have on your responses in parts a and b? a. The value of CoolTech's entire company is $. (Round to the…arrow_forwardUsing the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $4.61 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated from a variety of data sources. The key values you have compiled are summarized in the following table, a. Use the free cash flow valuation model to estimate CoolTech's common stock value per share. b. Judging by your finding in part a and the stock's offering price, should you buy the stock? c. On further analysis, you find that the growth rate in FCF beyond year 4 will be 3% rather than 2%. What effect would this finding have on your responses in parts a and b? a. The value of CoolTech's entire company is $ Data table (Click on…arrow_forward
- M2arrow_forwardLooking for Solution for Question 8: Your are a finance executive given the job of discussing attractiveness of two acquisition targets. Pick Microsoft and Verizon. Below are the hypothetical average percentage returns for the two companies- Microsoft and Verizon MSFT: 4,2,4,6,2,6,4,7,4,1,4,2,6 Verizon: 5,3,3,7,1,8,2,9,1,6,6,3,8 Market: 4,6,3,7,2,9,4,7,1,3,2,8,2 2. Find the standard deviation of the returns for the two companies. 3. Find the standard deviation for the portfolio of the two companies. (With stocks weights being: 70% msft and 30 % Verizon) 4. Calculate Beta for the two companies. (As demonstrated in the class: Run a regression or use the formula using covariance of each stock with the market divided by the variance of market). 5. Which of the companies is more risky in terms of Beta. 6. Which of the companies is more risky in terms of standard deviation? 7. Does portfolio of the two companies show lower standard deviation than individual stock company standard…arrow_forwardPls help on this question ASAParrow_forward
- Exercise 2: You are evaluating the investment in two companies whose past ten years' return are shown below: Salalah Mills Oman Mills X2 Year X 1 7 49 4 4 16 81 3 -3 -2 4 36 1 1 5 8 64 25 ΣΧ15 E X? =115 N= ΣΧ-22 Σχ174 Calculate the Average Return and Risk of each company's return? Which of the two companies are more risky and why?arrow_forwarddont uplode images in answerarrow_forwardChoice best answer please solve this questionsarrow_forward
- 23 The Hanks Co is considering two projects. Project A consists of building a bee sanctuary on the firm's small parcel of land. Project B consists of building a retail store on on that same parcel. The parcel can accommodate only one of the projects. Which method of analysis is most appropriate for an analyst to employ? A. Accounting rate of return B. Profitability index C. NPV D. Payback E. IRRarrow_forwardProblem 1 It is now 2024. You have been assigned as a financial advisor of a Philippine start-up company They assigned you to value its existing business had they exited the market 6 years ago, meaning in 2018. Details of the company are as follows: Futher assume that the company will nat exist beyond 2023, meaning the going concem principle will not apply. Also assume that the client wants you to use the dividend discount model for this project. 2018 6,458,000.0 2019 7,412,000.0 2020 8,126,000.0 2022 8,941,000.0 9.457.000.0 42.0% 28.0% 30.0% 2021 2023 Sales Variable expenses Fixed expenses Tax Rate 10,025,000.0 40.0% 30.0% 44.0% 30.0% 30.0% 38.0% 40.0% 41.0% 30.0% 29.0% 21.0% 31.0% 25.0% 24.0% 25.0% After conducting a financial due diligence, you found that: 1.) 2019 sales are inclusive of a 250.000 sales invoice that were in transit as of EOY 2019, thus delivered to the client on 2020, with terms of FOB Shipping Point. 2.) 2020 sales excluded a contract signed for senvices worth…arrow_forwardA Beta 1.10 Market Capitalization = 122.548B Book Value of Debt = 93.21B Bond Price = 103.10 Interest Rate = 2.75% Maturity = 20 years Therefore - PV = -1,031.00; FV = 1,000; PMT = 27.50; N = 20; CPT I = 2.55% Tax rate 21% Current One Year Treasury Bill Rate (Risk-free Rate) = 5% Market Return: Estimated at 8% Step 1 Calculate the WACC for Deere and Company (DE) given: Step 2 Step 3 Step 4 Search What are the weightings for Equity and Debt? What is the Cost of Equity? What is the After-Tax Cost of Debt? What is the WACC?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781285867977Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning

Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781285867977
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning