Athene Holding Ltd. had its IPO on November 4, 2016. The shares were priced at $40...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Athene Holding Ltd. had its IPO on November 4, 2016. The shares were priced at $40 per share, and on the opening day, the stock increased to $44.05 per share. The objective is to value Athene Holding. You have the following information from Athene's income statement: thousand USD Sales Food costs % of sales Labor costs % of sales Occupancy costs % of sales SG&A % of sales Depreciation % of sales Pre-opening costs % of sales 2014 200,000 58,000 0.29 50,000 0.25 36,000 0.18 30,000 0.15 10,000 0.05 10,000 0.05 2013 160,000 46,400 0.29 38,400 0.24 27,200 0.17 24,000 0.15 6,400 0.04 11,200 0.07 2012 120,000 34,800 0.29 30,000 0.25 21,600 0.18 14,400 0.12 4,800 0.04 8,400 0.07 EBIT 6,000 6.400 6,000 For the purpose of valuing Athene, you assume that there are two growth phases; the high-growth phase that lasts for six years until 2020, and the normal growth phase thereafter. All cash flows occur at the end of the year. Growth in sales between 2015 and 2020 equals 15% per year. From 2020 onwards, growth slows down to 1.5% per year (i.e., between 2019 and 2020, growth is 15%, between 2020 and 2021, it is 1.5%) All expenses remain at a constant level relative to sales as in 2014. Specifically, food costs are 29% of sales, labor is 25% of sales, occupancy expenses are 18% of sales, SG&A are 15% of sales, depreciation is 5% of sales, and pre-opening costs are 5% of sales. Net CAPEX (CAPEX-Depreciation) in each year is one over thirty of the change in sales in the following year (i.e., net CAPEX in 2015 is 1/30*(sales_2016-sales_2015)). Net working capital is 1/50 of expected sales in the following year from 2012. The tax rate is 30% for all years. a) Using this information, forecast the sales of Athene in 2015 to 2020. (1 point) b) Compute the unlevered free cash flow of Athene in 2015. (1 point) c) Forecast the unlevered free cash flow of Athene until 2020. (1 point) d) Since Athene just had its IPO, we do not have sufficient data to estimate its beta from historical returns. However, we know that Aegon's equity beta is 0.76. The book value of Aegon's debt is 15 billion. Aegon has a book value of equity of 13 billion, and a market capitalization of 90 billion. Aegon operates under a constant D/E ratio. The tax rate for Aegon is 30%. Using this information, compute the unlevered beta for Aegon. (4 points) Athene plans to operate under a constant D/E ratio of 1/9. Using Aegon as a comparable firm, compute the equity beta for Athene. (2 points) e) f) Estimate Athene's WACC, assuming that the risk-free rate is 2.35%, the market risk premium is 4%, and Athene's cost of debt is 3.5%. (3 points) g) Find the present value at the beginning of 2015 of the free cash flows of Athene in years 2015 to 2020 (assume that all cash flows occur at the end of each period). (2 points) h) Find the enterprise value for Athene. (4 points) You have the following balance sheet information (in thousand US dollars). Cash and Cash Equivalents Accounts Receivable Inventory Prepaid Expenses PP&E Other Assets Total Assets Accounts Payable Short-term Debt Accrued Expenses Long-term Debt Total Liabilities Stockholder Equity 5,400 6,600 1,200 2,800 140,000 10,000 166,000 13,000 64,000 11,000 52,000 140,000 26,000 i) Using the information, estimate the equity value for Athene. If there are 7 million shares outstanding, what is the fair value of the stock price? (2 points) Athene Holding Ltd. had its IPO on November 4, 2016. The shares were priced at $40 per share, and on the opening day, the stock increased to $44.05 per share. The objective is to value Athene Holding. You have the following information from Athene's income statement: thousand USD Sales Food costs % of sales Labor costs % of sales Occupancy costs % of sales SG&A % of sales Depreciation % of sales Pre-opening costs % of sales 2014 200,000 58,000 0.29 50,000 0.25 36,000 0.18 30,000 0.15 10,000 0.05 10,000 0.05 2013 160,000 46,400 0.29 38,400 0.24 27,200 0.17 24,000 0.15 6,400 0.04 11,200 0.07 2012 120,000 34,800 0.29 30,000 0.25 21,600 0.18 14,400 0.12 4,800 0.04 8,400 0.07 EBIT 6,000 6.400 6,000 For the purpose of valuing Athene, you assume that there are two growth phases; the high-growth phase that lasts for six years until 2020, and the normal growth phase thereafter. All cash flows occur at the end of the year. Growth in sales between 2015 and 2020 equals 15% per year. From 2020 onwards, growth slows down to 1.5% per year (i.e., between 2019 and 2020, growth is 15%, between 2020 and 2021, it is 1.5%) All expenses remain at a constant level relative to sales as in 2014. Specifically, food costs are 29% of sales, labor is 25% of sales, occupancy expenses are 18% of sales, SG&A are 15% of sales, depreciation is 5% of sales, and pre-opening costs are 5% of sales. Net CAPEX (CAPEX-Depreciation) in each year is one over thirty of the change in sales in the following year (i.e., net CAPEX in 2015 is 1/30*(sales_2016-sales_2015)). Net working capital is 1/50 of expected sales in the following year from 2012. The tax rate is 30% for all years. a) Using this information, forecast the sales of Athene in 2015 to 2020. (1 point) b) Compute the unlevered free cash flow of Athene in 2015. (1 point) c) Forecast the unlevered free cash flow of Athene until 2020. (1 point) d) Since Athene just had its IPO, we do not have sufficient data to estimate its beta from historical returns. However, we know that Aegon's equity beta is 0.76. The book value of Aegon's debt is 15 billion. Aegon has a book value of equity of 13 billion, and a market capitalization of 90 billion. Aegon operates under a constant D/E ratio. The tax rate for Aegon is 30%. Using this information, compute the unlevered beta for Aegon. (4 points) Athene plans to operate under a constant D/E ratio of 1/9. Using Aegon as a comparable firm, compute the equity beta for Athene. (2 points) e) f) Estimate Athene's WACC, assuming that the risk-free rate is 2.35%, the market risk premium is 4%, and Athene's cost of debt is 3.5%. (3 points) g) Find the present value at the beginning of 2015 of the free cash flows of Athene in years 2015 to 2020 (assume that all cash flows occur at the end of each period). (2 points) h) Find the enterprise value for Athene. (4 points) You have the following balance sheet information (in thousand US dollars). Cash and Cash Equivalents Accounts Receivable Inventory Prepaid Expenses PP&E Other Assets Total Assets Accounts Payable Short-term Debt Accrued Expenses Long-term Debt Total Liabilities Stockholder Equity 5,400 6,600 1,200 2,800 140,000 10,000 166,000 13,000 64,000 11,000 52,000 140,000 26,000 i) Using the information, estimate the equity value for Athene. If there are 7 million shares outstanding, what is the fair value of the stock price? (2 points)
Expert Answer:
Answer rating: 100% (QA)
SOLUTIONS IN DETAILS a Sales of Athene in 2015 to 2020 Year Sales 2015 160000 15 184400 2016 184400 15 213310 2017 213310 15 240945 2018 240945 15 273... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
Students also viewed these finance questions
-
The sums have been evaluated. Solve the simplified system for a, b, and c to find the least squares regression parabola for the points. Use a graphing utility to confirm the result. (Note: The symbol...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
Answer Problem 6.12 for a 90% CI. Refer to the data in Table 2.13. Regard this hospital as typical of Pennsylvania hospitals. Table 2.13: Hospital-stay data
-
For a 76 wt% Pb-24 wt% Mg alloy, make schematic sketches of the microstructure that would be observed for conditions of very slow cooling at the following temperatures: 575C (1070F), 500C (930F),...
-
Let Y 1 < Y 2 < < Y n be the order statistics of a random sample from the normal distribution N( 1 , 2 ), < 1 < , 0 < 2 < . Show that the joint complete sufficient statistics X = Y and S 2 for...
-
Calculate the magnitude of the magnetic force exerted on a wire that is \(20 \mathrm{~mm}\) long and carries a current of \(4.0 \mathrm{~A}\) when it is suspended inside a solenoid at an angle of...
-
The net income reported on the income statement for the current year was $600,000. Depreciation recorded on store equipment for the year amounted to $24,000. Balances of the current asset and current...
-
12. If the velocity-time graph has the shape AMB, what would be the shape of the corresponding acceleration-time graph? (A) a (B) (C) A (D) a A M B time(t)
-
E6-2B. Inventory Costing Methods-Periodic The following May data are for an item in Mary's inventory: unit. Method Mary Company uses the periodic inventory system. LO May 1 Beginning inventory, 150...
-
What are essentials of effective marketing control system?
-
1. Can a system that is fully deterministic, also be chaotic? What does deterministic chaos imply about the limits of prediction? Why? 2. Discuss how deterministic chaos might be controlled, as...
-
You believe that blockchain has the potential to revolutionise the financial world. In your role as a financial strategist in XYZ Bank, you are working on a proposal to convince the board of...
-
How do emergent properties such as resilience and stability manifest within ecological systems, and what are the underlying mechanisms that govern their dynamics in the face of environmental...
-
Epiphany is an all-equity firm with an estimated market value of $400,000. The firm sells $125,000 of debt and uses the proceeds to purchase outstanding equity. Compute the weight in equity and the...
-
Calculate the molar mass of a compound in the Dumas method at 100C for which the volume of the experimental container was 452 ml and the pressure was 745.1 torr. The difference in mass between the...
-
Malcolm has a capital balance of $66,000 after adjusting to fair market value. Celeste contributes $42,400 to receive a 25% interest in a new partnership with Malcolm.r Determine the amount and...
-
Calculate I, , and a for a 0.0175 m solution of Na 3 PO 4 at 298 K. Assume complete dissociation. How confident are you that your calculated results will agree with experimental results?
-
Henry Company is a marketer of branded foods to retail and foodservice channels. Exhibit 6.18 presents Henry's income statements for Year 10, Year 11, and Year 12. Notes to the financial statements...
-
The accrual basis of accounting creates the need for a statement of cash flows. Explain.
-
The acquisition of equipment by assuming a mortgage is a transaction that firms cannot report in their statement of cash flows but must report in a supplemental schedule or note. Of what value is...
-
The following table shows the interest rates on the fixed and floating borrowing choices available to three firms. Firms A and B want to be exposed to a floating interest rate while Firm C would...
-
Explain why trading derivatives on centralized exchanges rather than in over-the counter markets helps reduce systemic risk. Can you think of a way in which more trading on centralized exchanges...
-
Derivatives transfer risk from one person or firm to another. They can be used in any combination to unbundle risks and resell them.
Study smarter with the SolutionInn App