ALOFT CATERING CORPORATION

Stock Valuation

Aloft Catering Corp. Is a global provider of full range catering services to the airline industry? They provide a full range of food and beverage options to major global airlines and airport lounges around the world. They have grown substantially over the last decade as a pioneer in providing specialized meal service for travelers with multiple needs.

Alofss stock currently trades on the NASDAQ stock exchange at $85 per share. You are interested in investing in Aloft stock and would like to determine the intrinsic value. Towards this end, you have collected relevant financial information for 2018, and other information for their future growth. This information is presented in Table I. The firm does not currently pay dividends, but their CFO has announced they will most likely begin paying dividends in two years time (as of year-end 2020).

Your task is to complete a report in which you assess the intrinsic value of Aloft Catering's stock in year-end 2018 using as many methods as you have information for, and providing some recommendation for whether or not you should invest in the stock as of year-end 2018. Use the questions below to analyze and structure your report.

1.) Provide some sensitivity analysis on how the intrinsic value of the stock would change if the growth in net income from 2019 - 2022 were to change by about 2%, and fraction of capex and NOWC financed with debt were to change by about 5%. Estimate the intrinsic value. Under each of the following scenarios. Discuss your findings.

TABLE I
Selected Data Related to Aloft Stock
20I8 Net Income	$6,470,000
2018 Depreciation	$300,000
2018 Capex plus Operating Working Capital	$1,700,000
Beta coefficient	0.95
Tax rate	21.00%
Shares outstanding	3,210,000
Net Income growth, 2019-2022	9.00%
Capex plus NOWC growth, 2019-2022	8.00%
Depreciation growth, 2019 - 2022	4.00%
Constant growth in FCFE beyond 2022	6.00%
Risk-free rate	4.50%
Market risk premium	4.00%
First dividend expected in year-end 2020	$3.40
Growth in dividend in 2021 and 2022	8%
Constant growth in dividend beyond 2022	4.75%
Firm plans to finance 40% of capex and NOWC by issuing long-term debt.
Valuation Multiples (based on rapidly growing catering/hospitality firms):
Value as a multiple of FCFE	40
Value as a multiple of net income	35

	Growth rate in Net Income
Fraction financed with Debt	7%	9%	11%
35%
40%
45%