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Industry: Lodging Company: Starwood Hotels and Resorts

Industry: Lodging Company: Starwood Hotels and Resorts Module 5: Valuation Using Forecasts of Cash Flows. Sarah Weatherburn. Comparable Companies . Valuing a Firm:. Cost of capital for the enterprise operations – Captures the risk of the company’s enterprise operations

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Industry: Lodging Company: Starwood Hotels and Resorts

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  1. Industry: Lodging Company: Starwood Hotels and Resorts Module 5: Valuation Using Forecasts of Cash Flows Sarah Weatherburn

  2. Comparable Companies

  3. Valuing a Firm: • Cost of capital for the enterprise operations – Captures the risk of the company’s enterprise operations • Cost of capital for debt – Captures the risk to the company’s debt holders of default • Cost of capital for equity – Captures the risk to the company’s equity holders of getting distributions (dividends or increases in share price)

  4. Capital Asset Pricing Model Common estimate of cost of equity capital is based on the Capital Asset Pricing Model and utilizes a Beta. Expected Rate of Return – 3.55% Expected Market Return – 10.52%

  5. Beta – Online Sources

  6. Bloomberg - Beta

  7. Beta Regression

  8. Which BETA? • Regression – 1.22 to 2.23 • Bloomberg Raw – 1.59 • Bloomberg Adjusted – 1.399 • Beta Online – 1.43 to 2.32 1.72

  9. 15.54= 3.55 + [1.72 * (10.52- 3.55)]

  10. Lowest Beta 12.05 = 3.55 + [1.22 * (10.52- 3.55)]

  11. Cost of Debt Capital rD = Pretax borrowing rate for debt X (1 – Tax rate) Pretax borrowing rate can be provided by: FEAT / NFL 82/2,590 = 3.28% rD = 3.28% x (1 - .037) rD = 2.07% Rounded to 2.0%

  12. Cost of Enterprise Capital VD = 2,590 (book value of NFL) VEq = 90,590 (stock price of 76.76 times 1,180,170 common shares outstanding Implied Vent = 93,180 million

  13. Discounted Cash Flow Model

  14. Questions?

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