You are Account Manager for a Manager of a a duty-free research retailer located in major airports and are responsible for the accounting, planning and financial analysis for the Americas (North & South) region. In 2018, the company spun- off the North American operations, Neptune, for $600M but with the onset of the pandemic in 2020 the value of the company has sunk to $200M. Seeing the markets reaction to the pandemic has provided a window of opportunity amidst the chaos. Based on your observation there are two scenarios that make the most sense:

1. Purchase Neptune for $200M -or-
2. Pass on the purchase of Neptune and instead keep cash on the balance sheet in order to weather the storm

You arent sure how long the pandemic will negatively impact air travel but based on industry estimates travel volumes should return to pre-pandemic levels in 2023 or 2024 at the latest. This project is highly confidential. It has been code named Project Neptune. You will be working with a small team to develop the financial projections and make a recommendation to purchase or pass on the purchase of Neptune.

Purchase:

Purchase
	2020	2021e	2022e	2023e	2024e
Revenue
Passenger volume (in M)	1,246.50	2,250.00	3,150.00	4,050.00	4,500.00
Spend Per Passenger	$ 1.96	$ 1.98	$ 1.99	$ 2.00	$ 2.00
Cost as % of Sales
COGS	40%	40%	41%	41%	41%
Rent	10%	10%	10%	11%	12%
Labor	12%	14%	16%	15%	16%
Other Variable Cost	2%	4%	5%	5%	5%
Other costs (in $M)
Neptune	-200	0	0	0	0
Depreciation	1050	1300	1450	1450	1450
Capital Expenditures	-127	-220	-250	-250	-270
Working capital change	-45	10	-30	-20	5
Asset impairment charge	-110	-100	0	0	0

• Neptune purchase will be completed in 2020.
• Working capital will increase in the first two years of the project as the company will need to build inventory to support the new geographic segment.

Pass on Purchase:

Purchase
	2020	2021e	2022e	2023e	2024e
Revenue
EMEA	$ 1,140.00	$ 1,760.00	$ 2,464.00	$ 3,168.00	$ 4,840.00
Americas	$ 1,140.00	$ 2,200.00	$ 3,080.00	$ 3,960.00	$ 2,640.00
Asia	$ 160.00	$ 440.00	$ 616.00	$ 792.00	$ 1,320.00
EBIT Margin
EMEA	4.0%	4.3%	4.5%	4.7%	5.0%
Americas	5.0%	4.9%	5.5%	5.5%	5.5%
Asia	1.0%	2.0%	2.0%	2.2%	2.5%
Other costs (in $M)
Deprecation	1050	1200	1400	1400	1400
Capital Expenditures	-127	-200	-240	-240	-240
Working capital change	-30	20	-25	-20	10
Asset impairment charge	-110	-100	0	0	0

• Depreciation is included in the EBIT margin

Other information (same for both cases):

• Asset impairment charge is non-cash charge that is deductible for taxes. It is considered one-time in nature.
• Income tax rate 25% (this is the same rate for income from all locations in this analysis).
• WACC 9.0% (Remember to only discount future cash flows)
• Lastly, no terminal value has been determined in either case. The situation is fluid and you think the best approach is to compile and sort through the data you already have. This should be enough information to make a solid recommendation

Deliverables / Analysis

• Complete an excel based financial model and recommend whether the Company should purchase-or-pass on the purchase of Neptune.
• The financial model should include a high-level income statement and cash flow statement (cash flow from operations minus capex) for each scenario.
• The financial model should include a discounting of the free cash flow of both scenarios. The recommendation should be based on which of the two scenarios produces the highest NPV
• Be sure the model can handle input changes, it is likely management will ask for updates and sensitivities to the model