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Gap Inc.

Gap Inc. The Valuation Project -Mod 6 : Cost of Capital Sherry Xu ( netID : jxu6). Table of Contents. 1. Company profile 2. Estimating cost of capital 2.1 rEq 2.2 rD 2.3 rEnt 2.4 Calculating enterprise value using new rEnt. 1. Company profile. Industry : Apparel stores

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Gap Inc.

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  1. GapInc. TheValuationProject-Mod6:CostofCapital SherryXu(netID:jxu6)

  2. Table of Contents • 1. Company profile • 2. Estimating cost of capital • 2.1 rEq • 2.2 rD • 2.3 rEnt • 2.4 CalculatingenterprisevalueusingnewrEnt

  3. 1. Companyprofile Industry:Apparelstores Global retailer offering apparel, accessories, and personal care products for men, women, children, and babies Comparablecompanies:Abercrombie(ANF),AmericanEagle(AEO),Aeropostle(ARO) Foundedin1969inSanFrancisco;incorporatedinDelaware Brands:Gap, Old Navy, Banana Republic, Piperlime, Athleta, and Intermix #ofcompany-operatedstores: 3,095; # of franchise stores: 312 (As of FY2012 balance sheet date)

  4. 2.1 Estimating rEq • MonthlyreturnonS&P500andGPSforthe60monthsendingJan.2,2014 • Return =(Pt-Pt-1)/Pt-1

  5. 2.1 Estimating rEq

  6. 2.1 Estimating rEq

  7. 2.1 Estimating rEq

  8. 2.1 Estimating rEq • EstimatesofrRfandrMkt • Limitation of CAPM • Multi-factor model • Book-to-market ratio • Company size • Liquidity of company stock

  9. 2.2 Estimating rD • NFA? • RNFLof-7%?

  10. 2.2 Estimating rD

  11. 2.3 Computing rEnt • Causeofdifference?

  12. 2.4EstimatingenterprisevalueusingthenewrEq • Assumptions: • Sales growth rate: 5.00% • EPM: 7.60% • EATO: 4.10 • Enterprise value calculated by Bloombergest.ofWACC:19,828

  13. Questions?

  14. Thank you! Sherry Xu (netID: jxu6)

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