Estimate discount rate and perpetual growth rate

Assignment Help Finance Basics
Reference no: EM13836505

1. Estimate Financial Model Parameters

i. In sales-driven spreadsheet models, many items on the Income Statement and Balance Sheet are a proportion of sales, including (but not limited to):

• Receivables

• Accounts Payable

Determine appropriate forecasts of all relevant sales-related ratios (not just the two above examples) for Webjet. One method is to plot and analyse the historical values to obtain forecasts for the next three years. Alternatively, companies sometimes disclose their own management's forecasts of financial ratios. Therefore, if Webjet provides forecasts then you may use these forecasts in your model. Note: as explained in Question 5 part (i), your financial model must include some additional line items. Therefore, be sure to also develop forecasts for these new line items.

ii. There are other parameters that are not a ratio of sales, such as:

• Depreciation

• Interest expense

• Dividends paid

Determine appropriate forecasts for non-sales-related ratios (not just the three above examples) for Webjet by examining the historical values or making reasonable assumptions.

2. Estimate Discount Rate and Perpetual Growth Rate

To value Webjet from the free cash flows, you need to estimate the weighted average cost of capital (WACC) and the long-run free cash flow growth rate (see Benninga Sections 3.4 and 3.5).

i. You will first need to estimate the cost of equity. If you use the CAPM you must state the values and the source for each variable. Beta may be obtained from a reliable source, or you may estimate your own value. Similarly, explain how you calculate the cost of debt.

ii. Estimate Webjet's WACC.

iii. Read Benninga section 3.4 on the long-run free cash flow growth rate. What is your estimate of this figure for Webjet? You must explain how you obtained your estimate.

Reference no: EM13836505

Questions Cloud

Evaluate your premise using the litmus test found : Before submission, evaluate your Premise using the Litmus Test found in the Dissertation Premise Guide. Based on your evaluation, adjust your Premise as necessary
The difference between a rule-utilitarian and a kantian : the difference between a rule-utilitarian and a Kantian
Evaluate hypothetical situations and concepts : evaluate hypothetical situations and concepts
How did the french become the dominant competitors : How did the French become the dominant competitors in the increasingly global wine industry for centuries? What sources of competitive advantage were they able to develop to support their exports? Where were they vulnerable
Estimate discount rate and perpetual growth rate : Estimate Discount Rate and Perpetual Growth Rate. To value Webjet from the free cash flows, you need to estimate the weighted average cost of capital (WACC) and the long-run free cash flow growth rate.
Run up such huge deficits on its trade balance : What are some of the reasons the United States has run up such huge deficits on its trade balance (we import much more than we export)?
Sloping portion of the marginal product of labor curve : Using TP=Q=f(K,L) show mathematically that the average product of labor curve intersects the maximum point of the average product of labor curve. Demonstrate mathematically that the maximum point of the average product of labor curve falls on the dow..
Accelerated motion problems : For the motion described, graph the position vs. time, velocity vs. time, and acceleration vs. time, on the grids provided.
Fiscal policy impacts the supply side of the economy : In the long-run, fiscal policy impacts the supply side of the economy. Why do we ignore these effects in the short-run?

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Constructing and managing a portfolio simulation

I need help on how to approach this assignment. i have to write a memo after completing the simulation. Complete the Constructing and Managing a Portfolio simulation

  By how much would the afn for the coming year change

Howton & Howton Worldwide (HHW) is planning its operations for the coming year, and the CEO wants you to forecast the firm's additional funds needed (AFN). Data for use in the forecast are shown below.

  Waldo county the well-known real estate developer worked

waldo county the well-known real estate developer worked long hours and he expected his staff to do the same. so george

  When does internal rate of return model give the

what question is the payback period model answering? what are the two major drawbacks of the payback period model? in

  Compare the leverage ratios did the degrees of leverage stay

Question 1 Using the most recent three years of available data, compute Wal-Mart's and Target's degree of operating leverage. You will have to use the formula, percentage change in pretax income divided by percentage change in revenues. Show your wor..

  Fama''s llamas has a weighted average cost of capital

Fama's Llamas has a weighted average cost of capital of 9.5 percent. The company's cost of equity is 11 percent, and its cost of debt is 7.5 percent. The tax rate is 40 percent. What is Fama's debt-equity ratio? (Do not round intermediate calcu..

  Calculate the price of a one-year european put option

Calculate the price of a one-year European put option on the stock with a strike price of $60.

  What was the firm cash flow to creditors during 2010

The 2010 income statement showed an interest expense of $118,000. What was the firm's cash flow to creditors during 2010?

  Given the information on the company

You are given the information on the company. Total market value is= $38 million. Company's capital structure, given here, is considered to be optimal.

  Why must objectives be at the topmost level of a conceptual

why must objectives be at the topmost level of a conceptual framework of

  Valuing investment assets

Ditka engineering company has signed a third party loan guarantee for liberty company. The loan is fro the national bank of illinois for $500,000. Liberty has recnetly filed for bankruptcy,

  An investor is long a short-term at-the-money put option on

an investor is long a short-term at-the-money put option on an underlying portfolio of equities with a notional value

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd