APPENDIX A

Flight Centre Ltd (AU)
In Millions of $AUD	FY 2014	FY 2015	FY 2016
Revenue	2,212.40	2,367.40	2,640.30
- COGS	1,818.00	2,009.90	2,278.20
Gross Profit	394.40	357.60	362.20
+ Other Operating Revenue	90.85	86.99	94.44
- Depreciation & Amortization	53.80	54.10	66.10
- Other Operating Expenses	3.50	3.10	1.40
EBIT	427.95	387.39	389.14
- Interest Expense	29.50	24.30	28.10
- Foreign Exchange Losses (Gains)	15.00	-5.10	-3.80
- Net Non-Operating Losses (Gains)	3.50	3.10	-1.40
Pre-tax Income	379.95	365.09	366.24
- Income Tax Expense	116.86	109.74	100.49
Net Income (loss)	263.09	255.34	265.75
In Millions of $AUD	FY 2014	FY 2015	FY 2016
Assets
+ Cash & Near Cash Items	1,261.70	1,378.00	1,316.00
+ Short-Term Investments	41.20	75.70	204.50
+ Accounts Receivable	537.60	635.50	672.20
+ Inventories	47	63.6	70.5
Total Current Assets	1,887.50	2,152.80	2,263.20
+ Net Fixed Assets	161.00	196.30	216.30
+ Gross Fixed Assets	383.10	465.60	533.30
- Accumulated Depreciation	222.10	269.30	317.00
+ Other Long-Term Assets	361.90	438.90	521.80
Total Long-Term Assets	522.90	635.20	738.10
Total Assets	2,410.40	2,788.00	3,001.30
Liabilities & Shareholders' Equity
+ Accounts Payable	1040.5	1056.2	1487.1
+ Short-Term Borrowings	42.90	32.80	76.80
Total Current Liabilities	1261.20	1452.50	1566.70
+ Long-Term Borrowings	51.4	65.30	88.60
Total Long-Term Liabilities	51.40	65.30	88.60
Total Liabilities	1312.60	1517.80	1655.40
+ Share Capital	363.76	432.64	423.35
+ Retained Earnings	734.04	837.49	922.60
Total Equity	1097.80	1270.12	1345.95
Total Liabilities & Equity	2410.39	2787.97	3001.32
Cash Flow Information (inflows in positive & outflows in negative)
In Millions of $AUD	FY 2014	FY 2015	FY 2016
Capital Expenditures	-55.43	-82.85	-103.79
Disposal of Fixed Assets	0.00	0.00	17.20
Additional Long Term Debt	3.13	33.32	33.30
Cash Dividends Paid - Total	-146.78	-153.11	-158.35
Reduction In Long Term Debt	-1.48	-17.43	-10.00

Valuation

(A) Using the multi-stage dividend discount model (DDM), calculate the value of FLT shares. Use scrap paper for your workings (15 MARKS).

Assume that dividends in the next three years (starting from year 2017) will grow at a rate of 13% annually. Further, it is assumed that dividends will grow at a rate of 11% for the next four years (year 4 to 7). Thereafter it is assumed that the company will grow at a constant growth rate of 7% per annum. The last dividend paid (for 2016) is $1.52. Assume a required rate of return of 12%.

Clearly show the following:

Present Value of First Stage (4 marks)

Present Value of Second Stage (5 marks)

Present Value with constant growth rate (5 marks)

Stock Intrinsic Value (1 marks)

(B) Using the following data, calculate the equity value of FLT share (value per share). Answer in the box provided (10 MARKS).

Assume that FLT has FCFF of $ 150 million and FCFE of $ 200 million for the last financial year (since the last financial year had many unusual items, we ignore the FCFF/FCFF calculated earlier and use projected values instead). Both FCFF and FCFE are expected to grow at a constant rate of 7% per annum indefinitely. FTLs required rate of return of equity is 12% and the before tax cost of debt is 7%. The company expects a target capital structure consisting of 20% debt financing and 80% equity financing. The tax rate is 30%. Use book value of long-term debt. FLT has 100 million outstanding common shares.

Clearly show the following:

FCFE (4 Marks)

FCFF (6 Marks)

(C) P/E Valuation

The EPS for Flight Centre for 2016 was $2.42 and dividend payment - $1.52. Using fundamental trailing P/E multiple method, calculate the value of the stock by assuming that earnings will grow at a constant rate of 8% per annum indefinitely. FTLs required rate of return is 12% and before tax cost of debt is 7%. Assume that FLT will maintain the current dividend pay-out ratio. (5 marks)