Subject :Rolls Roys Holding
For the subject company, undertake the following activities:
a) Research your firm's business model, particularly its sources of revenue and its profit margins. What sort of revenue growth do you think it will be able to maintain in the next ten years? Do you think it will be able to maintain its current profit margins?
b) Perform a valuation of your firm based on your analysis in part a) using the following steps
i) Formulate a realistic model of revenue growth over the next ten years, and constant thereafter.
ii) Formulate a model for profit margins for the next ten years. You may assume that profit margin remains constant or you may choose to vary it over the first ten years. Assume a constant profit margin from year ten onwards.
iii) Carry out a dividend discount model valuation based on i) and ii) as follows. You must use and justify an appropriate weighted average cost of capital for your firm.
c) How does your valuation compare to the valuations based on the recent movements of your firm's share price? What do the current share price movements tell you about the market's estimations of your firm's prospects?