Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

−£611milliononrevenuesof£456million.Byanymeasure,
it was a firm in financial trouble.

Muchofthefinancingforthetunnelhadcomefromdebtand,
attheendof1997,Eurotunnelhaddebtobligationsinexcess
of£5,000million,raisedfromavarietyofbondissuesand
bankdebt.Addingtheexpectedinterestpaymentsandcoupon
paymentstothedebtbringsthetotalobligationsofthefirm
up to £8,865 million.The following table summarizes the
outstanding debt at the firm, with our estimates of the
expected duration for each class of debt.

Debt Type

Face Value (Including Cumulated

Coupons) (£ millions)

Duration

(Years)

Short-term 935 0.5

10-year 2,435 6.7

20-year 3,555 12.6

Longer-term1,940 18.2

Total/

Average

8,865 10.9

The firm’s only significant asset is its ownership of the
tunnel, and we estimated the value of this asset from its
expectedcashflowsandtheappropriatecostofcapital.The
assumptions we made were:

• Revenues willgrow 10% a year for thenext five
  years and 3% a year in perpetuity after that.


• Thecostofgoodssold,whichwas72%ofrevenues
  in 1997,willdropto 60%of revenuesby 2002 in
  linear increments and stay at that level.