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  • Corp FIn GAp

    Transféré par

    Prabhakar Mani
    48 vues22 pages
    Established in 1969, GAP Inc. is the largest specialty retailer in USA. Exhibit 1 gives the details of its stores across the globe. As a Company, GAP has always been seen as a brand targeted at young crowd for their casual wear needs and its most famous brands are Old Navy and Banana Republic. GAP has been trying to carve out its space in luxury retail market and it took its first steps when it acquired Intermix in December 2012 for USD 130 mn (http://online.wsj.com/news/articles/SB10001424127887323689604578218041584954854). To take a step further in the same direction, GAP is considering an expansion into luxury wear by manufacturing high end apparels as a “Private Label”. Traditionally, majority of its manufacturing is done outside USA and is outsourced as cost becomes a huge differential but because this would be its landmark entry into a different segment, it has decided to keep the manufacturing with itself. You have been asked to assess the project and come back with your recommendations as you run the show at HQ of GAP. You did your research and have come back with the following information:  Setting up own manufacturing facility would require acquisition of land and all other key machinery for the business. You would get the ball rolling by an initial investment of $ 2 bn. After 1 year of initial investment, there will be an additional investment of $ 1 bn and it would be followed by an investment of $ 0.5 bn the following year. The business would be up and running at the beginning of the third year. Out of the total investment, $ 2,5 bn would be depreciated using a double declining balance depreciation over a period of 10 years (Switch to straight line when it provides a higher depreciation and then stay with straight line)  You had asked your team to carry out a market research to gauge the potential of the business and see if customers would be able to relate to GAP promoting a luxury brand. To complete the same, your team has already incurred and expensed cost of $ 200 mn and has come to you with details about the potential marke

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    Established in 1969, GAP Inc. is the largest specialty retailer in USA. Exhibit 1 gives the details of its stores across the globe. As a Company, GAP has always been seen as a brand targeted at young crowd for their casual wear needs and its most famous brands are Old Navy and Banana Republic. GAP has been trying to carve out its space in luxury retail market and it took its first steps when it acquired Intermix in December 2012 for USD 130 mn (http://online.wsj.com/news/articles/SB10001424127887323689604578218041584954854). To take a step further in the same direction, GAP is considering an expansion into luxury wear by manufacturing high end apparels as a “Private Label”. Traditionally, majority of its manufacturing is done outside USA and is outsourced as cost becomes a huge differential but because this would be its landmark entry into a different segment, it has decided to keep the manufacturing with itself. You have been asked to assess the project and come back with your recommendations as you run the show at HQ of GAP. You did your research and have come back with the following information:  Setting up own manufacturing facility would require acquisition of land and all other key machinery for the business. You would get the ball rolling by an initial investment of $ 2 bn. After 1 year of initial investment, there will be an additional investment of $ 1 bn and it would be followed by an investment of $ 0.5 bn the following year. The business would be up and running at the beginning of the third year. Out of the total investment, $ 2,5 bn would be depreciated using a double declining balance depreciation over a period of 10 years (Switch to straight line when it provides a higher depreciation and then stay with straight line)  You had asked your team to carry out a market research to gauge the potential of the business and see if customers would be able to relate to GAP promoting a luxury brand. To complete the same, your team has already incurred and expensed cost of $ 200 mn and has come to you with details about the potential marke

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    © All Rights Reserved
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    48 vues22 pages

    Corp FIn GAp

    Transféré par

    Prabhakar Mani
    Established in 1969, GAP Inc. is the largest specialty retailer in USA. Exhibit 1 gives the details of its stores across the globe. As a Company, GAP has always been seen as a brand targeted at young crowd for their casual wear needs and its most famous brands are Old Navy and Banana Republic. GAP has been trying to carve out its space in luxury retail market and it took its first steps when it acquired Intermix in December 2012 for USD 130 mn (http://online.wsj.com/news/articles/SB10001424127887323689604578218041584954854). To take a step further in the same direction, GAP is considering an expansion into luxury wear by manufacturing high end apparels as a “Private Label”. Traditionally, majority of its manufacturing is done outside USA and is outsourced as cost becomes a huge differential but because this would be its landmark entry into a different segment, it has decided to keep the manufacturing with itself. You have been asked to assess the project and come back with your recommendations as you run the show at HQ of GAP. You did your research and have come back with the following information:  Setting up own manufacturing facility would require acquisition of land and all other key machinery for the business. You would get the ball rolling by an initial investment of $ 2 bn. After 1 year of initial investment, there will be an additional investment of $ 1 bn and it would be followed by an investment of $ 0.5 bn the following year. The business would be up and running at the beginning of the third year. Out of the total investment, $ 2,5 bn would be depreciated using a double declining balance depreciation over a period of 10 years (Switch to straight line when it provides a higher depreciation and then stay with straight line)  You had asked your team to carry out a market research to gauge the potential of the business and see if customers would be able to relate to GAP promoting a luxury brand. To complete the same, your team has already incurred and expensed cost of $ 200 mn and has come to you with details about the potential marke

    Droits d'auteur :

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    sur 22

    Investment

    Yr
    Invst(billion)

    0
    2

    Year of Completion

    3 Yr 3 onwards

    Depreciation Amount(Bil)

    0
    72.00
    6%
    Yr 3
    2%
    1.72

    EBITDA Margin

    30%

    S&GA
    Current
    Growth for 12 yrs
    Allocation

    3 bil
    5% p.a
    10% of total

    Gen and Admin


    Yr 3
    As a % of Rev
    Yr
    S and GA
    Allocated for New SGA
    G and A
    Total Allocated Cost

    Distr
    Capacity Util
    Increase every year

    1
    76.32

    2
    80.90

    4
    2.5%
    0.50%
    2.27

    5
    3.0%
    0.50%
    2.89

    1
    3.15

    2
    3.31

    200

    Yr
    Market Size
    Growth

    Increase
    Sales

    2
    0.5

    2.5

    Market Survey Cost (Initial Cost Mil)

    Market Share GAP

    1
    1

    100 mil
    6%
    0
    3

    70%
    3.50%

    New Business

    8% of Total Capacity

    Capacity Expansion cost


    Inflation
    DDB Depreciation

    1 (yr 3)
    2%
    20 yrs

    Advertising Exp
    Current
    Incr
    Yr 3 onwards

    1 bn
    5% 12 yrs
    10% addnl exp

    Yr
    Expense
    Addnl Advert
    Total Advert

    0
    1.00

    1
    1.05

    2
    1.10

    1.00

    1.05

    1.10

    WC Details
    A/C Receivable
    Inv
    Credit Offered

    5% Revenue
    20% COGS
    8% COGS

    Beta
    Rating
    Default Spread

    1.04
    BBB1.65%

    Stk Price
    Shares Out

    39.9
    446 Mil

    Capital Structure
    Debt
    Maturity
    Interest

    1394 Mil
    6 yrs
    61 Mil

    TAX RATE
    Effective
    Marginal

    38.80%
    40%

    US Govt Bond Rate


    Expected Inflation

    2.5%
    2%

    Lease Obligation
    2014
    2015
    2016
    2017
    2018
    Thereafter
    Total Minimum
    working capital
    years

    1105
    1087
    915
    738
    586
    1716
    6147

    Accounts recivables
    Inventory
    Payables
    Working capital
    Growth rate in steady state
    RF
    Beta
    Rm
    Cost of Equity
    Cost of Debt
    Equity Market value
    Debt value
    D/E
    WACC

    0
    0
    0
    0

    0
    0
    0
    0

    0
    0
    0
    0

    3%
    2.5%
    1.04
    9.05% A.Damodaran India Equity Risk Premium
    11.91%
    4.1500%
    17795.4 mn
    1394 mn
    0.0726442724
    11.35%

    3
    85.75

    4
    90.90

    5
    96.35

    6
    3.5%
    0.50%
    3.57

    7
    4.0%
    0.50%
    4.33

    8
    4.5%
    0.50%
    5.16

    3
    3.47
    0.35
    0.10
    0.45

    4
    3.65
    0.36
    0.13
    0.50

    5
    3.83
    0.38
    0.17
    0.55

    6
    102.13

    7
    108.26

    8
    114.76

    9
    121.64

    10
    128.94

    9
    10
    5.0%
    5.0%
    0.50% Stable
    6.08
    6.45

    11

    12

    13

    6
    4.02
    0.40
    0.21
    0.61

    7
    4.22
    0.42
    0.25
    0.67

    6.83

    7.24

    7.68

    8
    4.43
    0.44
    0.30
    0.74

    9
    4.65
    0.47
    0.35
    0.82

    10
    4.89
    0.49
    0.38
    0.86

    3
    1.16
    0.12
    1.27

    4
    1.22
    0.12
    1.34

    5
    1.28
    0.13
    1.40

    6
    1.34
    0.13
    1.47

    7
    1.41
    0.14
    1.55

    8
    1.48
    0.15
    1.63

    9
    1.55
    0.16
    1.71

    10
    1.63
    0.16
    1.79

    10

    0.085753 0.113623 0.144528 0.178733 0.216523


    0.089458 0.09943 0.110285 0.122091 0.134925
    0.035783 0.039772 0.044114 0.048837 0.05397
    0.139428 0.173281 0.210699 0.251988 0.297478

    quity Risk Premium

    0.258203 0.304106 0.322353


    0.148867 0.164006 0.172915
    0.059547 0.065602 0.069166
    0.347524 0.40251 0.426102

    11
    136.68

    12
    144.88

    13
    153.57

    14
    162.79

    12
    5.39
    0.54
    0.42
    0.96

    13
    5.39
    0.54
    0.45
    0.99

    14
    5.39
    0.54
    0.47
    1.01

    14

    8.14

    11
    5.13
    0.51
    0.40
    0.91

    11
    1.71
    0.17
    1.88

    12
    1.80
    0.18
    1.98

    13
    1.89
    0.19
    2.07

    14
    1.98
    0.20
    2.18

    11

    12

    13

    14

    15

    0.341694 0.362195 0.383927 0.406963


    0.182313 0.192225 0.197294 0.202666
    0.072925 0.07689 0.078918 0.081067
    0.451081 0.477531 0.502303 0.528562

    0
    STRAIGHT LINE
    DOUBLE DECLINING

    INVESTMENT
    BOOK VALUE:BEG
    DEPRECIABLE BV
    DDB DEPRECIATION
    STL DEPRECIATION
    DEPRECIATION USED
    NET BOOK VALUE

    DISTRIBUTION CAPACITY
    INVESTMENT REQUIRED

    2000

    70.0%
    1000

    TIME LINE FOR DEPRECIATION


    DOUBLE DEPRECIATION

    TIME PERIOD
    FINAL DEPRECIATION In Bil

    10%

    11%

    13%

    14%

    17%

    2000
    2000
    400
    200
    400
    1600

    500
    1600
    2100
    420
    233.3333333
    420
    1680

    1680
    1680
    336
    210
    336
    1344

    1344
    1344
    268.8
    192
    268.8
    1075.2

    1075.2
    1075.2
    215.04
    179.2
    215.04
    860.16

    73.5%

    77.0%

    88.500%

    92.0%

    95.5%

    1020

    1040.4

    1061.208

    1
    0.40

    2
    0.42

    3
    0.34

    20%

    1082.43216 1104.080803

    4
    0.27

    5
    0.22

    10

    20%

    25%

    33%

    50%

    100%

    860.16
    860.16
    172.032
    172.032
    172.032
    688.128

    688.128
    688.128
    137.6256
    172.032
    172.032
    516.096

    516.096
    516.096
    103.2192
    172.032
    172.032
    344.064

    344.064
    344.064
    68.8128
    172.032
    172.032
    172.032

    172.032
    172.032
    34.4064
    172.032
    172.032
    0

    99.0%

    100.0%

    114.87

    103.38

    93.04

    8
    0.29

    9
    0.28

    10
    0.27

    1126.162419 1148.685668
    0

    6
    0.17

    7
    0.17

    83.74

    75.37

    67.83

    61.05

    54.94

    11
    0.08

    12
    0.08

    13
    0.07

    14
    0.06

    15
    0.05

    10

    11

    12

    13

    49.45

    44.50

    40.05

    36.05

    32.44

    16
    0.05

    17
    0.04

    18
    0.04

    19
    0.04

    20
    0.03

    14

    15

    16

    17

    18

    29.20

    26.28

    23.65

    21.29

    19.16

    21
    0.03

    22
    0.03

    23
    0.02

    24
    0.02

    25
    0.02

    19

    20

    17.24

    15.52

    26
    0.02

    27
    0.02

    Year
    Revenue
    EBITDA
    Depreciation
    Allocated Cost
    Advertising Expense
    Operating Income(EBIT)
    Interest Expense
    PBT
    TAX
    PAT
    Capital Invested
    Total Capital Invested
    Return on Capital

    0.061
    -0.06
    -0.02
    -0.04

    0
    0.40
    -0.40
    0.061
    -0.46
    -0.46

    0
    0.42
    -0.42
    0.061
    -0.48
    -0.48

    1.72
    0.51
    0.34
    0.45
    0.12
    -0.38
    0.061
    -0.45
    -0.45

    2.27
    0.68
    0.27
    0.50
    0.12
    -0.21
    0.061
    -0.27
    -0.27

    2
    2
    -1.9%

    1
    3
    -15.4%

    0.5
    3.5
    -13.7%

    3.5
    -12.7%

    3.5
    -7.6%

    0
    0

    10

    11

    12

    2.89
    0.87
    0.22
    0.55
    0.13
    -0.03
    0.061
    -0.09
    -0.09

    3.57
    1.07
    0.17
    0.61
    0.13
    0.16
    0
    0.16
    0.06
    0.10

    4.33
    1.30
    0.17
    0.67
    0.14
    0.31
    0
    0.31
    0.12
    0.19

    5.16
    1.55
    0.29
    0.74
    0.15
    0.37
    0
    0.37
    0.14
    0.23

    6.08
    1.82
    0.28
    0.82
    0.16
    0.57
    0
    0.57
    0.22
    0.35

    6.45
    1.93
    0.27
    0.86
    0.16
    0.64
    0
    0.64
    0.25
    0.39

    6.83
    2.05
    0.08
    0.91
    0.17
    0.88
    0
    0.88
    0.34
    0.54

    7.24
    2.17
    0.08
    0.96
    0.18
    0.96
    0
    0.96
    0.37
    0.59

    3.5
    5.5%

    1
    4.5
    5.0%

    4.5
    7.8%

    4.5
    8.7%

    4.5
    12.0%

    4.5
    13.0%

    3.5
    -2.5%

    3.5
    2.7%

    13

    14

    7.68
    2.30
    0.07
    0.99
    0.19
    1.06
    0
    1.06
    0.41
    0.65

    8.14
    2.44
    0.06
    1.01
    0.20
    1.17
    0
    1.17
    0.45
    0.72

    4.5
    14.4%

    4.5
    15.9%

    working capital
    Accounts recivables
    Inventory
    Payables
    Working capital

    Year
    Net Income
    Depriciation
    Capex
    Change in WC
    Salvage Value
    CFE
    NPV
    IRR

    Years
    Net Income
    Depriciation
    Capex
    Change in WC
    Salvage Value
    CFE
    Terminal Value
    CFE
    NPV
    IRR

    0 0.085753 0.113623

    0
    -0.04
    0.00
    2

    1
    -0.46
    0.40
    1
    0

    2
    3
    4
    -0.48
    -0.45
    -0.27
    0.42
    0.34
    0.27
    0.5
    0 0.139428 0.033853

    -2.04
    ($2.17)

    -1.06

    -0.56

    0
    -0.04
    0.00
    2

    1
    -0.46
    0.40
    1
    0

    2
    3
    4
    -0.48
    -0.45
    -0.27
    0.42
    0.34
    0.27
    0.5
    0 0.139428 0.033853

    -2.04

    -1.06

    -0.56

    -0.25

    -0.03

    -2.04
    ($0.33)

    -1.06

    -0.56

    -0.25

    -0.03

    -0.25

    -0.03

    0.144528 0.178733 0.216523 0.258203 0.304106 0.322353 0.341694 0.362195

    5
    -0.09
    0.22

    6
    0.10
    0.17

    0.037418 0.041289

    7
    0.19
    0.17

    8
    9
    10
    0.23
    0.35
    0.39
    0.29
    0.28
    0.27
    1
    0.04549 0.050046 0.054986 0.023592

    0.09

    0.23

    0.32

    5
    -0.09
    0.22

    6
    0.10
    0.17

    7
    0.19
    0.17

    0.037418 0.041289

    -0.54

    0.57

    11
    0.54
    0.08

    12
    0.59
    0.08

    0.02498 0.026449

    0.63

    0.60

    0.63

    8
    9
    10
    0.23
    0.35
    0.39
    0.29
    0.28
    0.27
    1
    0.04549 0.050046 0.054986 0.023592

    11
    0.54
    0.08

    12
    0.59
    0.08

    0.02498 0.026449

    0.09

    0.23

    0.32

    -0.54

    0.57

    0.63

    0.60

    0.63

    0.09

    0.23

    0.32

    -0.54

    0.57

    0.63

    0.60

    0.63

    0.383927 0.406963

    13
    0.65
    0.07

    14
    0.72
    0.06

    0.024773 0.026259
    0
    0.69
    0.75

    13
    0.65
    0.07

    14
    15
    0.72 0.737147
    0.06
    0.06

    0.024773 0.026259 0.026259


    0
    0.69
    0.75
    0.77
    9.25
    0.69
    10.00

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