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Valuation of Equity

Valuation of Equity. Module Nine. Wendy’s Overview. One of the largest quick-service restaurants in the hamburger sandwich segment Operates 6,542 restaurants in 26 countries 1,418 company owned restaurants 5,124 franchises

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Valuation of Equity

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  1. Valuation of Equity Module Nine

  2. Wendy’s Overview • One of the largest quick-service restaurants in the hamburger sandwich segment • Operates 6,542 restaurants in 26 countries • 1,418 company owned restaurants • 5,124 franchises • In the process of transitioning from fast food (low cost, low quality) to fast casual (moderate cost, high quality)

  3. Forecast Assumptions • Rent: 7.96% • Growth (within horizon): 8% • Growth (beyond horizon): 2.8% • EPM: 10% • EATO: 1.05

  4. Indirect Equity Valuation

  5. Sensitivity Analysis of Indirect Valuation • Step 1: Perform sensitivity analysis of enterprise value • Increased/decreased by 1% pt and 2% pt to capture uncertainties within forecast • Fixed-horizon growth rate was modified (as opposed to the continuing growth rate) because it is more subjective

  6. Sensitivity Analysis of Indirect Valuation • Step 2: Adjust the enterprise values to reflect Wendy’s value today (as opposed to 12/31/13). • Enterprise Value * (1 + Discount Rate)^(83/365)

  7. Sensitivity Analysis of Indirect Valuation • Step 3: Subtract NFL to arrive at equity value

  8. Sensitivity Analysis of Indirect Valuation • Share Value

  9. Direct Equity Valuation • Methods • Dividend Discount Model • Residual Income Model • Direct valuation of equity poses a problem through the assumption that leverage remain constant • Highly unlikely

  10. Implied Forecasts for Wendy’s • Source: Valueline (2/28/14)

  11. Dividend Discount Model

  12. Residual Earnings Model

  13. End • Questions?

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