bbby1 - as the last 5 years so we decided to adjust the...

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DCF Analysis We valued Bed Bath & Beyond using a two stage growth discounted cash flow analysis. The two stage model is appropriate because BBBY is a growing company. The first stage which is the growth period would be the next 5 years. The following assumptions have been made to facilitate the analysis: Sales revenue growth rate during the forecast period: Over the latest 5 periods (fiscal year 2004 – 2008), the compound growth rate of Bed Bath & Beyond was 9%. However, the annual growth rate is much more fluctuated especially during 2008 because BBBY main competitor liquidated their assets including inventory by selling them lower than market value causing a sharp drop in BBBY sales. Therefore, the compound rate which has much smoother declining trend is used for a base to determine forecasted sales growth over the next five year. Due to current economic situation, BBBY is not expected to have as high growth
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Unformatted text preview: as the last 5 years so we decided to adjust the historical growth rate down and get the growth rate for the next five years at 7%. Sales revenue growth after the forecast period: After the forecast period, the growth rate is expected to fall to 4.5% in line with the nominal growth rate of the economy, based upon a prediction of 2.5% potential real growth in GDP and 2% inflation. Tax rate: The historical effective tax rate of BBBY was around 37%. We believed that this would be the same over the forecasted period. Therefore, tax rate of 37% is applied to the analysis. Cost of goods sold over sales: We believed that the percentage of cost of goods sold over sales would remain at 60% throughout the forecasted period which is slightly higher than the last year. Sellinggeneral and administrative expense over sales: We believed that the percentage of selling general and administrative expense over sales would remain at 30% throughout the forecasted period. .....
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