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Case Tottenham Hotspur

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1a) Change in NWC = cash requirements + inventory + receivables – payables. There will be no cash requirements, because of the hint in the question excess cash should not be included so therefore change in NWC will be 1,17 + 19,99 – 64,40 = -43,24 for the year 2007. For the next years until 2020 will use the revenue growth as a measurement to calculate the NWC for the next years. The revenue growth is 9 percent per year so the NWC will grow by 9 percent per year. FCF = (Revenue – Costs – Depreciation) x (1 – tax rate) + Depreciation – Capital Expenditure – change in working capital. So when I fill in this formula I get: 71,1 – 69,1 – 2,2 x (1 – 0,35) + 2,2 – 2,26 – -43,24 = 45,79. See for the next years the last page of this document. 1b) that is because most of the football clubs won’t have a large sum of accounts receivables and have a small inventories.

“Normal organizations” will have much higher accounts receivables and much bigger inventories. 1c) E(R) = RFR + βstock (Rmarket – RFR) according the case the risk free rate is 4,57% and the beta is 1,29 and the market risk premium will is given in the question 4,57% + 1,29 x 5% = 11,02 % is the expected return on equity. 1d) Cost of debt can be calculated by dividing the interest expense / amount of equity x 100%. So if we put in the numbers we get the following: (2,26/ 45,73) x 100 = 4,94%. For calculating the weighted average cost of capital after tax we use the following formula:

WACC = (45,73/153,2) x 11,02% + (107,48/153,2) x 4,94% x (1 – 0,35) = 2,58%

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