Dyson Plc has just released its financial results for 2020. It achieved sales of 1.3bn and expects
Question:
Dyson Plc has just released its financial results for 2020. It achieved sales of £1.3bn and expects these to grow at 4% per year. Cash on deposit is £220m, debt is £100m, and has issued 30m shares. Depreciation is expected to remain constant at £100m per year. It is taxed at a rate of 22%.
You estimate the following information:
EBIT is 7% of sales Dyson expects increases in net investment and in net working capital will be 6% and 8% of any increase in sales, respectively. The firm's WACC is expected to be 9%.
(a) Using a free cash flow approach, calculate a fair price for Dyson Plc shares. (60%)
(b) Firms in the same sector are trading in the market at an average Enterprise Value to EBITDA multiple of 8, based on forecasted earnings. In the light of this, calculate a fair price for Dyson Plc shares, and explain the limitations of the use of multiples to value a firm. (40%)
Accounting Principles
ISBN: 978-1119048503
7th Canadian Edition Volume 1
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak