The University of the West Indies, Mona
Masters in Business Administration
Cohort 15
SBFI6020 – Advanced Corporate Finance
Tottenham Hotspur
ID#:
620039225
Date: January 30, 2013
Lecturer: Harry Abrikian
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
Daniel Levy, Chairman Tottenham Hotspurs Football Club
Davion Bramwell, Consultant, Solutech Innovation
January 30, 2013
New Stadium and Player Acquisition
As requested, the report outlines the analysis of the options available to Tottenham Hotspur
Football Club (THFC) for generating more revenue in order to gain a comparative advantage amongst key competitors. The options available to the club are as follows:
1. Operating the existing current stadium with 36,500 seats while keeping a single goalscorer (Pavlyuchenko)
2. Add a new top scorer to the team
3. Building a new 60,000 seat stadium with external financing
4. Building a new stadium while acquiring a new top scorer.
Discount cash flow (DCF) analysis
In order determine the suitable option; a discounted cash flow method was used to project THFC free cash flow for the next 13 years. The following assumptions have been made in the estimation of cash flow:
Market Rate of 11% was assumed
Discount Rate is 10.02, method used is WACC
Interest payments are not included.
Net Investment is based on maintenance capital expenditure minus the depreciation related to Capex.
Working Capital is based on the difference between current assets minus current liabilities. Working capital increases as sales revenues, in the calculation it is assumed that working capital is proportional to Revenue growth of 9%.
Long term growth is 4%
Company Tax Rate 35%
Salary Growth is 10%
Discount Rate Calculation
WACC = E/V*Re + DV*Rd*(1-Tc)
Where:
E = Market Value of Equity, D =Market value of Debt, V = Market Value of Equity + Market value of Debt, Re = Cost of Equity, Rd = Cost of Debt, Tc = Coporate Tax
WACC = 128.2/182.2*.1281+ 43.08/182.2*0.0525*