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Master in Economics and Finance

Master in Economics and Finance. Case study The market value of a car company: “Auto sport” Venezia, January 2009. Suppose: Today is December 31 st 2001;

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Master in Economics and Finance

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  1. Master in Economics and Finance Case study The market value of a car company: “Auto sport” Venezia, January 2009

  2. Suppose: • Today is December 31st 2001; 2. A famous car company (XX) has to manage a financial distress. That’s why it would like to list a controlled company, in order to sell 35% of its shares; 3. Company (XX) shows you, a well known financial analyst, the business plan of the controlled company, asking for a valuation.

  3. “Auto-Sport” – past and future evolution Sales (Euro Bn.) EBITDA/EBIT/FCFO (EuroBn.) IMA (02-05) Expected 5,2% 6,8% 8,2% Growing sales and profit; Positive FCFO from 2004

  4. Sales volume “Auto-Sport” Brand 1 Brand 2 15.503 16.624 11.765 8.027 6.158 6.042 • Average price per unit sold (‘000 Euro) • Brand 1 • Brand 2 186,6 155,9 62,1 65,4 Strong volume increase for brand 2

  5. Pay attention!!! - There is a big difference between the average price per unit sold of the two brands

  6. Total sales (Euro Mln.) Brand 2 Brand 1 54% 46%

  7. Expected operating cash flows (FCFO)

  8. Summary of Cars Segmentation and exposure to cyclicality .... Wealth Ultra-HNWI • Influenced by equity markets • High Incomes to cover monthly payments WW Shipmentsd Number o U HNWI .... WW Shipments Number o HNWI • Mature industry closely related to business cycle UHNWI High Income/ Wealth HNWI ... • Cars seen as investment/enjoyment • Relies on accumulated wealth • Portfolio diversified resistant to market swings • Cars are well within purchasing capability WW Shipments % Change HNWI PIL High Income High Consumer Confidence HNWI U-HNWI Low Shipments Cyclicality/ Volatility Driver Cyclicality decreases with increases in car value

  9. In order to use a DCF approach: - how do you calculate the “fair” cost of capital? And then: - which is the fair value of the company?

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