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DCF Model

DCF Model. Discount, Variety Store - Costco Aileen Huang. Sales Forecast. Higher than Industry average Averages 2.3% for Warehouse Clubs and Supercenters from 2014-2018 Key drivers Economy P er capita disposable income increase by 2.5 % during the next five years

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DCF Model

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  1. DCF Model Discount, Variety Store - Costco Aileen Huang

  2. Sales Forecast • Higher than Industry average • Averages 2.3% for Warehouse Clubs and Supercenters from 2014-2018 • Key drivers • Economy • Per capita disposable income increase by 2.5% during the next five years • Retain a large portion of customers gained during the recession by continuing to offer a diverse, comprehensive product range • New warehouses • Plan to open 30 to 36 new warehouses in 2014; 26 new in 2013 • Competition • Convenient, a mix of general merchandise, a more enjoyable shopping experience • Forecasting sales growth rate: 5.6%

  3. EPM from Sales Forecast • Key drivers • Private-label items • 15% gross margin for private-label items • 12%-13% add-on for brand-name merchandise • Increase the penetration • Selection change • Decrease in fresh foods (higher margin) • Increase in optical and hearing aid (higher margin) • Management efficiency • 2013: Net sale 6% up; Gross margin 7 points up; SG&A 1 point up • Forecasting EPM from sales: 2.2%

  4. EATO Forecast • Key drivers • Inventory management • Cross-docking consolidation point, 22 • Higher inventory turnover • Hours of operation: not 24/7 • Forecasting EATO: 10.2

  5. Parsimonious Forecasting

  6. DCF Model • Assumptions • Cost of capital • Beta • 0.46-Yahoo • 0.57-MSN • 0.59-Reuter • 0.59-Cnbc • 7.32%-CAPM • 9.4% -Bloomberg • Growth rate: • 4% 2019-2023 • Favorable business model • Long-term objectives: reducing employee turnover and enhancing customer satisfaction • 2% perpetual • Inflation rate; mature

  7. DCF Model-Bloomberg • Enterprise value: $42,743

  8. DCF Model-CAPM • Enterprise value: $42,743 • CAPM • Rf: 3 month treasury bill • Rmkt: 10-year S&P

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