Question #$2$

You are working as a junior analyst for a buy$-$side firm and the associate you work for wants you to get started on a preliminary valuation model for AssetCo, a

public asset manager that runs diversified portfolios in various asset classes and had $$40$ billion in assets under management $($AUM$)$ at the end of $2023.$

a$)$ The first thing you notice about AssetCo, and the industry in general, is that assets under management $($AUM$)$ drives revenue because of fees that are

collected on a percentage basis from underlying accounts. Given the invormation in the Table $5$ below, calculate an estimate of AssetCo's net assets

$($AUM$)$ in $2024,2025$ and $2026.(2$pts$)$

Note: You may assume the flows do not participate in the appreciation.

Inflows $($Billion USD$)$

Outflows $($Billion USD$)$

Appreciation of Prior AUM

Net Assets $($AUM$,$ Billion USD$)$

Table $5.$ AssetCo Flows & AUM

b$)$ Assuming AssetCo generates $($and will continue to generate$)$ sales of about $1\mathrm{.}5\%$ per dollar of AUM, project the company's revenue for $2024-2026$ and

populate the approriate field in Table $2($AssetCo Income Statement$).(2$pts$)$

c$)$ Calculate COGs and SG&A costs as a percentage of revenue for $2021-2023.$ Then use the average values $($on a $\%$ basis$)$ to project the company's COGs

and SG&A for $2024-2026$ and populate the appropriate fields in Table $2.(2$pts$)$

d$)$ Assuming AssetCo pays a $10\%$ interest expense on and average debt of $$75$MM$,$ $$45$MM and $$15$MM in $2024,2025$ and $2026$ and is

taxed at an effective $23\mathrm{.}1\%$ rate for at least the next three years, complete the company's Income Statement $($Table $2),$ projecting Net

Income from $2024-2026.(2$pts$)$

e$)$ Looking at other Asset Managers, you seem to notice that there is a potential relationship between each company's P$/$E $($FY $2024)$ and its $3-$Year Sales

Growth and AUM. Construct a multiple linear regression to test this hypothesis. Is either sales growth or AUM a significant predictor $($p$<mn\; id="EditorElement\_665969">0</mn><mn\; id="EditorElement\_665970">.</mn><mn\; id="EditorElement\_665971">0</mn><mn\; id="EditorElement\_665972">5</mn><mi\; id="EditorElement\_665973">)</mi>$ of $\frac{P}{E}?$

Are both? $(2$pts$)$

f$)$ Using only the significant predictors in your prior answer, historical sales and your projections for $2024$ sales, predict AssetCo's P$/$E $($FY$2024)$ multiple.

What do you think of this value? How does it compare to the peer group? $(2$pts$)$

P$/$E $($FY$2024)$

Comparison?

g$)$ Using the multiple you calculated above, calculate a share price for AssetCo at the end of $2024$ assuming that the firm has $64$ million shares

outstanding $($Method $1).$ Repeat this analysis using the average multiple of the peer group $($Method $2).(2$pts$)$

h$)$ Project through $2026$ Asset Co's Balance sheet and Cash Flow Statement assuming there is no change in any of the Asset and Liability Accounts other

than Cash and that AssetCo completely pays down its $$90MM$ debt in $$30M\frac{M}{?}$ year increments by $2026.(3$pts$)$