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Struggling with where to start this assignment? Follow this guide to tackle your assignment easily!

Step 1: Understand the Case Requirements Before you start calculating, take a moment to understand the task at hand. The assignment is asking you to:

• Perform a Discounted Cash Flow (DCF) analysis to determine the value of Tottenham Hotspur (Hotspurs).
• Perform a multiples analysis to compare the value of Tottenham Hotspur.
• Evaluate whether the club is fairly valued at the current stock price of £13.80.
• Evaluate the financial impact of decisions like building a new stadium or signing a new striker.
• Use a DCF approach to calculate the impact of each decision.
• Select the best decision based on your findings.

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Step 2: Prepare for the DCF Analysis For this task, you will need to focus on how to calculate the present value of Tottenham Hotspur using future cash flow projections. Here’s what you’ll need to do:

• Find the cash flow projections: These should be available in the case you’re given. The cash flow projections are usually given for several years into the future.

• Calculate the terminal value: The terminal value is the present value of all future cash flows after the last projection year. You can calculate it using the perpetuity formula:

  Terminal Value=Final Year Cash Flow×(1+g)r−g\text{Terminal Value} = \frac{\text{Final Year Cash Flow} \times (1 + g)}{r – g}Terminal Value=r−gFinal Year Cash Flow×(1+g)​

  Where:

  • $g$ is the growth rate (usually assumed to be low, around 2-3%).
  • $r$ is the discount rate (in your case, 10.25%).

• Calculate the DCF: Discount each year’s cash flow and terminal value back to the present value using the formula:

  Present Value=CFt(1+r)t\text{Present Value} = \frac{CF_t}{(1 + r)^t}Present Value=(1+r)tCFt​​

  Where CFtCF_tCFt​ is the cash flow for year $t$ and $r$ is the discount rate (10.25%).

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Step 3: Perform the Multiple Analysis A multiples analysis helps you estimate the value of Tottenham Hotspur by comparing it to other similar businesses.

• Select appropriate multiples: Common multiples to use for this analysis include:

  • Price-to-Earnings (P/E) ratio.
  • Price-to-Sales (P/S) ratio.
  • Enterprise Value (EV) to EBITDA.

• Compare multiples: Use the multiples of similar football clubs or companies in the same industry to estimate a fair value for Tottenham.

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Step 4: Evaluate the Fair Value of Tottenham Now that you have both the DCF and multiples analysis values:

• Compare your calculated DCF value to the current stock price of £13.80.
• If the DCF value is higher than £13.80, Tottenham is undervalued; if it’s lower, Tottenham is overvalued.

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Step 5: Evaluate the Impact of Key Decisions (Build a New Stadium, Sign a New Striker, or Both) Now that you have the base DCF value, let’s analyze the impact of the potential decisions:

• Build the New Stadium: You will need to adjust the DCF model for any expected revenue or expenses from the new stadium. For example, a new stadium may increase matchday revenue, but it will also have construction costs.

• Sign a New Striker: Signing a new striker could impact revenues (more goals, higher attendance, sponsorships) but will also increase costs (wages, transfer fees).

• Both Decisions: Combine the effects of both decisions (stadium + striker) and adjust your DCF model again to account for these changes.

For each decision, ensure you:

• Adjust revenues and costs accordingly.
• Recalculate the DCF with the new cash flows.
• Ensure you use the 10.25% discount rate and adjust for capital acquisitions and changes in net working capital as mentioned in the case.

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Step 6: Select the Best Decision Once you have recalculated the DCF values for each scenario (new stadium, new striker, or both), compare the results:

• Choose the decision that maximizes the value of Tottenham (the highest DCF value).
• Provide a logical argument to support your choice by highlighting the financial benefits, risks, and expected outcomes of your selected decision.

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Conclusion: You are expected to:

1. Perform two main valuation methods: DCF and multiples analysis.
2. Evaluate and compare the value of Tottenham Hotspur based on the current stock price.
3. Use the DCF method to evaluate business decisions like building a new stadium and signing a new striker.
4. Select the best decision based on the DCF outcomes and provide a reasoned argument.

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Remember:

• Always show your calculations clearly.
• Be logical and support your arguments with data.
• Keep track of your assumptions and explain them.

Good luck! You’ve got this.