LABOUR CASE STUDY

You have information for the year N concerning Labour, a firm which main activity is to
exploit luxury hotels:

Market value of equity $1,070,000,000

Number of shares 11,000,000
Net debts $321,000,000
Working capital 10 days of sales
Daily price of a room $300
Occupancy rate of rooms 60%
Number of rooms 9,000
EBITDA 24% of sales
Depreciations $70,000,000
Capital expenditures $80,000,000

Suppose that for the N+1/N+5 period:

The occupancy rate of rooms increases each year by 200 basis points (means that the
occupancy rate of rooms will be 60% in the year N, 62% in the year N+1 and so forth)
The price of a room increases each year by 4 %,
The EBITDA to sales ratio increases each year by 100 basis points (means 24% in N, 25% in
N+1 and so forth)
The net debts of N can be considered as being close to their long-run level,
The capital expenditures and the depreciation are each year $80,000,000 and $70,000,000
respectively.
The interest rate of the net debt is 4.2%, the risk free rate is 3.2%, the historical return of the
market is 8.8%, the tax rate is 34% and the β of the firm is 0,94.
From the year N+6 the free cash flows of Labour are a growing perpetuity with a growth rate
of 2 %.

According to the DCF model, what is the price of a Labour stock?