Question:

Brueggeman and Johnson Valuations, and have been assigned the valuation of privately owned firm, High Flying Gaming and Resorts International (High Flying). High Flying is an owner and operator of gaming and entertainment resorts around the world. Revenue was $5.285 billion and net income was $347 million in 2017. A great majority of their revenue (80%) comes from the casinos and the remaining revenue is evenly split between rooms, entertainment, and retail.

You have been provided with High Flyings income statements and balance sheets for the last five years (2013-2017). Their management team has provided forecasted growth rates in revenue for the next five years: revenue will grow by 10%/year in 2018, 2019, and 2020 and then grow by 5%/year in 2021 and 2022. You were also told that the last bond issued by the firm in April of 2017 was a 20-year bond with a coupon rate of 9%/year that sold for $960 per bond. Their management also provided the three firms that should be used as peers: Wynn Resorts Ltd, MGM Resorts International, and Las Vegas Sands Corporation. It was suggested that you use December 31^st, 2018 as your valuation date.

It is common practice at Brueggeman and Johnson to apply various valuation models in their valuation analysis. More specifically, the firm applies the P/E multiple model, the EBITDA multiple model, and the discounted free cash flow model (for the EBITDA multiple model, please estimate peer multiples for the most recent fiscal year to compare with peer multiples found on Morningstar.com, both 2017 and current). I want to remind you of the recent memo sent to all valuation analysts at Brueggeman and Johnson on how to adjust the CAPM when estimating a private firms cost of equity capital. The memo suggested that if publicly traded peer firms are used to estimate the beta of a private firm, the analyst should add an additional risk premium of 5% to the cost of equity of the publicly traded firm to adjust for the additional risk associated with a private firm.

High Flying Gaming Resorts International
Income Statement ($millions)
	December	December	December	December	December
	2017	2016	2015	2014	2013
Revenue	$5,285	$4,519	$3,975	$4,802	$5,087
Cost of Goods Sold	$3,553	$3,114	$2,799	$3,345	$3,559
Gross profit	$1,732	$1,406	$1,176	$1,458	$1,529
R&D Expense	$31	$0	$0	$11	$26
S,G, & A Expense	$553	$485	$569	$407	$273
Other Operating Expenses	$541	$552	$471	$368	$383
Operating Income	$608	$368	$136	$672	$847
Interest Expense	$230	$224	$118	$124	$153
Other Income (Expense)	-$63	-$70	-$78	-$17	-$114
Earnings Before Income Taxes	$315	$75	-$60	$530	$580
Taxes Paid	$0	$8	$1	$3	$2
Other Non-Reoccuring Income	$32	$109	$167	$81	$59
Net income	$347	$176	$106	$608	$637
Number of Shares Outstanding	489	506	539	549	550
From Cash Flow Statement:
Depreciation & Amortization Expense	$541	$552	$471	$368	$383
Capital Expenditures	$173	$132	$277	$238	$95
Tax Rate (Taxess Paid/EBIT)	0.0%	10.7%	-1.7%	0.6%	0.3%

High Flying Gaming Resorts International
Balance Sheet ($millions)
	December	December	December	December	December
Assets	2017	2016	2015	2014	2013
Cash	$1,508	$1,702	$1,611	$1,598	$2,009
Receivables	$177	$225	$272	$254	$288
Inventories	$35	$33	$33	$23	$18
Prepaid expenses	$78	$68	$61	$69	$55
Other current assets	$48	$251	$1,043	$1,559	$779
Total Current Assets	$1,845	$2,280	$3,020	$3,503	$3,148
Net property, plant and equipment	$5,731	$5,656	$5,760	$4,696	$3,309
Goodwill	$82	$82	$82	$82	$82
Intangible assets	$1,048	$1,128	$1,208	$1,319	$1,441
Deferred Income taxes	$0	$0	$0	$0	$0
Other long-term assets	$190	$195	$339	$832	$833
Total Long-Term Assets	$7,050	$7,061	$7,390	$6,930	$5,665
Total Assets	$8,895	$9,340	$10,410	$10,433	$8,814
Liabilities
Short-term debt	$51	$51	$107	$263	$263
Capital Leases	$33	$31	$30	$24	$27
Accounts payable	$16	$17	$16	$14	$10
Taxes Payable	$192	$167	$189	$178	$246
Accrued liabilities	$762	$567	$384	$365	$226
Deferred revenues	$424	$260	$83	$81	$80
Other Current Liabilities	$206	$386	$407	$392	$386
Total Current Liabilities	$1,684	$1,479	$1,215	$1,317	$1,238
Long-term debt	$3,507	$3,670	$3,856	$3,640	$2,271
Capital Leases	$266	$262	$270	$278	$253
Deferred taxes liabilities	$54	$56	$56	$59	$63
Pensions and other benefits	$0	$15	$48	$21	$0
Minority Interest	$448	$480	$592	$756	$678
Other long-term liabilities	$49	$35	$33	$76	$64
Total Long-Term Liabilities	$4,323	$4,517	$4,855	$4,830	$3,329
Total Liabilities	$6,008	$5,996	$6,070	$6,146	$4,567
Total Equity	$2,888	$3,344	$4,340	$4,286	$4,247
Total Liabilities and Equity	$8,895	$9,340	$10,410	$10,433	$8,814
Excess Cash	$1,244	$1,476	$1,412	$1,358	$1,755
(Total Cash - 5%*Revenue)
Operating Working Capital	-$1,032	-$624	$500	$1,091	$418
(Current Assets - Excess Cash) - (Current Liab - Interest Bearing Current Liabilities)

Find the following:

Peer PE Ratios	Value Line	Morning Star
Wynn Resorts Ltd =
MGM Resorts International =
Las Vegas Sands Corporation =
Peer Averages

Value of Equity per Share
P/E Ratio	EPS FY 2019	Price/Share on 12/31/2018

Estimated EBITDA Multiple	December 2013	December 2014	December 2015	December 2016	December 2017	4 Year Ave EBITDA Multiple
MV of Equity
plus BV of Debt
minus Excess Cash
Enterprise Value
EBITDA
EBITDA Multiple