"SoulCycle - Startup Valuation: IPO" Assignment Questions

Instructions:

Your group should upload one electronic copy of your Excel solution on Canvas. Assignments submitted late will not be accepted. You should submit a solutionto all “Assignment Questions”. Your solution should be formatted and set out so that it is easy to read, clearly show your working, the logic behind your answers, and any assumptions you made in the analysis.

Assignment Questions

2. Estimate SoulCycle’s optimal capital structure. To estimate the optimal capital structure for SoulCycle use the following information:
• You will need a starting guess for the enterprise value of SoulCycle despite the fact that it is not currently publicly traded. To do this, choose comparable firm(s) from those provided in Exhibit 7 and use an (Enterprise Value)/EBIT multiple to estimate the EV at SoulCycle. Justify which comparable firm(s) you use to form your estimate.
• There is very little data to judge how variable SoulCycle’s operating profit margin could be in the future. As part of your free cash flow projections, you forecasted what operating profit margins would be at SoulCycle on average in the long term. Estimate that in a bad year operating profit margins will fall to half this ratio.     • You will need to estimate the yield (rD) that SoulCycle will pay on its debt at the optimal capital structure. To do this, use the following information on debt ratings and yields. Specifically, estimate SoulCycle’s bond rating by computing the actual coverage ratio SoulCycle would have had in 2014 if it had been at its optimal capital structure. Compare this to the information on “Interest Coverage Ratio” to estimate how SoulCycle will be rated in the future.

Justify each of the judgments you make in arriving at your estimate for the optimal capital
structure.