Whistling Winds Resort Spa
This spa has just opened. The owner has estimated sales, cost of sales, payroll, operating expenses for the first five years. Compute the Gross Profit and EBITDA for these five years:
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Year 1
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Year 2 est
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Year 3 est
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Year 4 est
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Year 5 est
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Total Spa Revenue
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$3,200,000
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$5,758,317
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$6,503,677
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$7,279,858
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$8,086,863
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Cost of Goods Sold
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160,000
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287,915
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325,183
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363,992
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404,343
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Gross Profit
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Payroll
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2,304,000
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3,278,150
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3,559,542
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3,901,888
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4,256,566
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Operating Expenses
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896,000
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1,111,380
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1,197,812
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1,297,296
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1,404,492
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EBITDA
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Now use a 10% discount factor and the Excel NPV function to compute the present value of the five years of EBITDA (Year 1 through Year 5).
Net Present Value of Year 1 through Year 5 EBITDA @10%:
Suppose that the EBITDA in Year 5 continues at that level in all subsequent years, forever. Treat this as a perpetuity to determine its capitalized value. What would the value of this endless stream of cash flow be worth, at a discount rate of 10%? Insert it in the cell above the arrow.
Finally, recompute the NPV of the projected EBITDAs from Year 1 through Year 6, (i.e., including the capitalized value in Cell H11):
Net Present Value of all future projected EBITDA @10%:
Is this a reasonable estimate of the value of the spa?
How does this value compare to the value you would obtain if you applied a normal (9X to 12X) EBITDA valuation approach to the Year 1 EBITDA?