Uber Investment

Project
Ann Bui (7900749) | Dylan Zacharias (7936610)
Hien Do (7932965) | Kaiden Kalcsics (7938662)
Riley Kotzer (7931407) | Tharindu Kottegoda (7930828)

FIN 2200 – A01 Group 4

April 8, 2023

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Table of Contents
INVESTMENT CASH FLOWS ............................................................................................................................... 3
OPERATING CASH FLOW FORECAST .................................................................................................................. 4
WEIGHTED AVERAGE COST OF CAPITAL ............................................................................................................ 7
COMPARABLE #1 ........................................................................................................................................................... 7
COMPARABLE #2 ........................................................................................................................................................... 8
UBER ANALYSIS .............................................................................................................................................................. 8
PROJECT WACC ............................................................................................................................................................ 8
CONCLUSION ................................................................................................................................................... 9
PROJECT NPV................................................................................................................................................................ 9
RECOMMENDATION ...................................................................................................................................................... 10
STAKEHOLDER CONFLICTS .............................................................................................................................................. 10
APPENDIX ...................................................................................................................................................... 11
APPENDIX 1 -................................................................................................................................................................. 5
APPENDIX 2 -................................................................................................................................................................. 5
APPENDIX 3 -................................................................................................................................................................. 5
APPENDIX 4 -................................................................................................................................................................. 5

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Investment Cash Flows - Ann
Vehicle Cost Salvage Value CCA Tax Shields

Corolla Hybrid $44540.55 (including 79% 40%- CCA rate

12% tax and discount)

Investment Cash flow Cost

Certificate of inspection for uber 50$
Driver License Test 95$
Delivery bag 13$
Car Cost:
Original car cost 41,871.49$
Colour cost 255$
Tires for winter 231.49
GST 5% 2093.57$
PST 7% 2931.00$
Discount from dealer 3000$
Total investment cost 44540.55$

Salvage Value in 5 years:

Present Value of capital cost allowance Tax shield and Salvage

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Certificate of inspection for uber 50 0 0 0 0 0
Driver license 95 0 0 0 0 0
Delivery Bag ( offer from car
company) 13 0 0 0 0 0
Car cost:
Original car cost 41,871.49
Colour cost 255
Tires for winter 389.49

Discount from dealer 3000

Cost of the car before 39,515.98
corporate tax rate 12% 5024.57
Total investment cost (including
tax) 44540.55
CCA rate 40%
Marginal tax rate 25%

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Discount rate 12%
Residual value 100.00% 92.98% 81.82% 79.40% 76.98% 74.55%
38932.1 34259.2 33245.9 32232.6 31215.1
Resale of the car 41,871.49 114 5312 6306 73 958

Salvage Value in 5 years 31215.1958

With the Pv of CCA tax shield We need to assume at 5 years and it will be the
same tax year.

PV Of CCA Tax shield. 4214.6219

Operating Cash Flow Forecast – Dylan

Per Trip Info-

Revenue for each trip is estimated using a base fare of $3.42, $0.90 per km driven, and $0.31
per minute (Uber, n.d.). The average uber trip length is calculated from an estimate by Forbes
Magazine (2015) of 5.41 miles or 8.7 km. The 15-minute wait time is an assumption based on
experience driving in the city of Winnipeg. Under these assumptions the average revenue from
each trip is $15.90

Revenue Per unit

Base Fare $ 3.42
Per km $ 0.90
Per min. $ 0.31
Avg. Uber trip length 8.7 km
Avg. Uber trip time 15 min.
Avg. Uber trip cost $ 15.90

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Revenue-
Assumptions: Revenue for the year is calculated based on an assumption of 2 trips per hour
(Forbes Magazine, 2015). In addition, assumptions were also made about how many hours will
be driven. Because of downtime between rides and to make some extra money to help pay for
his new car, Samuel will work slightly longer than a normal full-time job, at 10 hours a day. We
are also assuming that he works 5 days a week for 50 weeks a year (2 weeks' vacation).
According to Uber (n.d.), drivers keep 75% of the fares while Uber takes 25% for software and
administrative fees.

Total revenue Driver cut (75%)

1 day $ 318.00 $ 238.50
1 week $ 1,590.00 $ 1,192.50
1 year $ 79,500.00 $ 59,625.00

Operating Costs (By year)-

Assumptions:
Fuel costs: Using the same assumptions as before for trip distance, rides/hour, and hours
worked, Samuel will drive about 696 km on rides in a week. We will assume that Samuel has
about 300 km driven between rides and home after the shift is over, for a total of
approximately 1000 km/week. Samuel will need about 46 litres of fuel per week, based on the
fuel efficiency of 4.6 L/100km (Toyota Canada, n.d.). Using the 3-month average gas price in
Manitoba of $1.504/litre of fuel, Samuel will spend approximately $69.18 in fuel per week or
$3459.20 per year.
Insurance & Registration Cost: Based on a quote from the Manitoba Public Insurance website
(n.d.), the yearly insurance expense will be $2 839.00 in year one, and registration costs will be
$126.00. After the first year, we assume both will increase by approximately 1.5% per year
(CBC, 2023).
Maintenance Costs: Maintenance costs over 5 years will be approximately $222 per year or
$1110 over 5 years (Caredge, n.d.).
Car loan payment: Monthly payment at 6.49% APR over 60 months (Toyota Canada, n.d.).
$869.40 per month or $10 432.80 per year.

Operating
Costs 1 2 3 4 5
Fuel costs $ 3,459.20 $ 3,459.20 $ 3,459.20 $ 3,459.20 $ 3,459.20
Insurance
costs $ 2,839.00 $ 2,881.59 $ 2,924.81 $ 2,968.68 $ 3,013.21
Registration
cost $ 126.00 $ 127.89 $ 129.81 $ 131.76 $ 133.73
Maintenance
costs $ 222.00 $ 222.00 $ 222.00 $ 222.00 $ 222.00

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Car loan
payment $ 10,432.80 $ 10,432.80 $ 10,432.80 $ 10,432.80 $ 10,432.80

Total $ 17,079.00 $ 17,123.40 $ 17,168.60 $ 17,214.40 $ 17,260.94

Monthly payment $ 869.40

Yearly payment
total $ 10,432.80

km/week 1000
Fuel Price (Based on 3-month average from stats Canada) $ 1.504
Litres of gas used in a week 46
Weekly gas expense $ 69.18

Operating Costs (Total)-

Operating Costs Total

Fuel costs $ 17,296.00
Insurance costs $ 14,627.29
Registration cost $ 649.19
Maintenance costs $ 1,110.00
Car loan payment $ 52,164.00
Total $ 85,846.47

Opportunity Costs-
Assumptions: Instead of buying a car and driving for Uber, Samuel could instead get a minimum
wage job down the street from his house. We assume that he would work starting at $15.30,
the minimum wage in Manitoba starting in October and work 8 hours a day, 5 days a week, and
50 weeks a year. We also expect some wage growth, approximately 2.5% per year.

Opportunity costs 1 2 3 4 5
Working min.
wage job $ 30,600.00 $ 31,365.00 $ 32,149.13 $ 33,776.67 $ 35,486.62
Tax $ 7,650.00 $ 7,841.25 $ 8,037.28 $ 8,444.17 $ 8,871.65
After tax income $ 22,950.00 $ 23,523.75 $ 24,111.84 $ 25,332.51 $ 26,614.96

Capital Expenditures-
Cost of purchasing the vehicle: $44 540.55

Changes in Net Working Capital-

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Assumptions: Inventory: Tissues, gum, water, etc.
Receivables: Uber allows daily withdrawals, so receivables are only for one day.
Payables: Assumption that gas is paid by credit and paid 1 month later, so 1 months' worth of
gas expenses.

Changes in net
working capital 1 2 3 4 5
Cash $ - $ - $ - $ - $ -
Inventory $ 150.00 $ 150.00 $ 150.00 $ 150.00 $ (150.00)
Receivables $ 238.50 $ 238.50 $ 238.50 $ 238.50 $ (238.50)
Payables $ 288.27 $ 288.27 $ 288.27 $ 288.27 $ (288.27)
NWC $ 100.23 $ 100.23 $ 100.23 $ 100.23 $ (100.23)
Change in NWC $ 100.23 $ - $ - $ - $ (100.23)

Unlevered Net Income-

Assumptions: Revenue will grow at 3% per year.

1 2 3 4 5
Revenue $ 59,625.00 $ 61,413.75 $ 63,256.16 $ 65,153.85 $ 67,108.46

Expenses $ 17,079.00 $ 17,123.48 $ 17,168.62 $ 17,214.44 $ 17,260.94

EBIT $ 42,546.00 $ 44,290.28 $ 46,087.55 $ 47,939.41 $ 49,847.52
Tax (25%) $ 10,636.50 $ 11,072.57 $ 11,521.89 $ 11,984.85 $ 12,461.88
Unlevered
Net Income $ 31,909.50 $ 33,217.71 $ 34,565.66 $ 35,954.56 $ 37,385.64

Weighted Average Cost of Capital

Comparable #1
DiDi Global Inc. is a competitor in the ride hailing service sector and is considered
as a useful comparable to Uber. DiDi’s primary markets are found in China, Brazil,
and Mexico and offers a diverse range of services from maintenance to electric
vehicle leasing. Therefore, this comparable can provide better insights for the
cost of upkeep for this project. DiDi has a higher exposure to the market with a
beta of 2.11, the highest beta of the listed project comparables.

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Comparable #2 - Kaiden
Lyft is a good comparable to Uber because they provide near identical services
within the transportation industry. Lyft is a ride sharing company based out of San
Francisco California that was incorporated in 2007 (Yahoo Finance, n.d). One large
difference between the two competitors is that Lyft only serves Canada and the
United States whereas Uber serves many countries globally. Both companies have
similar betas with Lyft’s being 1.29 compared to Uber’s 1.13(Bloomberg L.P, n.d a)
(Bloomberg L.P, n.d b). A benefit to Lyft however is on average a Lyft driver sees a
higher average return per hour than Uber (Farrington, 2022).

Uber Analysis -
Tharindu
Uber is somewhat comparable. Their revenues are 25% of total fares. This means
that their cashflows are approximately comparable to the drivers themselves.
However, Uber is a scalable business with high fixed costs and low variable costs.
As opposed to the drivers who need to pay for gas and depreciation on their car,
both have a variable cost. Depreciation cost is not really correlated with the
market so it has a beta of zero. We can replicate the risks associated with the
price of gas through the beta of an ETF such as the United States Oil Fund, which
has a beta of 2.44 which means that the price of oil has a lot of systemic risk. So
we see that Uber drivers have a revenue beta of approximately that of Uber but a
cost beta of the price of gas (on top of other expenses which have a lower beta).
Since drivers have costs which can fluctuate considerably, the cost of capital for
the driver must be higher than the cost of capital for Uber.

WACC Calculations were based on the Government of Canada Risk Free 4.40%
Treasury Bill for the risk-free rate and the annualized return of Market return 11.80%
the S&P 500 for the expected return of the market.

Corporate income tax rates are Comaparable Tax Rate Market Cap (Million) Debt
based in the USA for Uber and Uber 35% $ 85,245 $ 9,265
Lyft. The People’s Republic of Lyft 35% $ 4,846 $ 803
China is used for DiDi. DiDi 25% $ 25,097 $ 8,520

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Comaparable Cost of debt Weight of debt Cost of Equity Weight of Equity Beta WACC
Uber 7.50% 0.10 12.78% 0.90 1.132 12.00%
Lyft 7.38% 0.14 13.92% 0.86 1.286 12.62%
DiDi 7.44% 0.25 14.19% 0.75 1.323 12.01%

WACC Assumptions: (1) The cost of debt for DiDi was taken as an average of Uber
and Lyft since they have not issued bonds to raise debt (DiDi raised debt with
banks before their IPO). (2) The measurements of Beta were normalized across
companies to have consistent calculations.
WACC
Project WACC Uber 12.00%
The project WACC is calculated as the average across the three Lyft 12.62%
comparables to produce an accurate estimate. The value DiDi 12.01%
calculated is 12.21% which will be the rate used for this project. Average 12.21%

Conclusion
Project NPV
NPV = Sum all Cash Flows + Salvage Value +PV (Tax Shields) – Initial Capital Expenditure

1 2 3 4 5
Unlevered Net $ $
Income 31,909.50 $ 33,217.71 $ 34,565.66 $ 35,954.56 37,385.64
Opportunity $ $
Cost 22,950.00 $ 23,523.75 $ 24,111.84 $ 25,332.51 26,614.96
Change in Net
Working $ $
Capital 100.23 $ - $ - $ - (100.23)
Free Cash $ $
Flows 8,859.27 $ 9,693.96 $ 10,453.82 $ 10,622.05 10,870.91
Discounted
Cash Flow (To $ $
year 0) 7,895.26 $ 7,699.06 $ 7,399.12 $ 6,700.11 6,110.94

Project NPV= 7 895.26+ 7 699.06+ 7 399.12+ 6 700.11+ 6 110.94+ 31 215.20+4 214.62- 44

540.55
NPV = $26,693.76

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Recommendation – Kaiden (if no one else needs another part)
Our recommendation is to take on this project as the NPV is very high, and it
would benefit Samuel greatly. Buying the Corolla Hybrid new and then using Uber
as a way to pay for it has a positive NPV for the 5 years he will own the vehicle.
After the 5 years we estimate that the car will have a high salvage value giving
Samuel money for his next vehicle or any other purchase. As this is not only about
the financials, but Samuels first car he fully owns, we must consider the intangible
value this project brings. For Samuel owning this vehicle will give him a sense of
maturity and freedom he may lack without a vehicle of his own. With this in mind
we believe the NPV of this project would remain positive and even increase as he
will gain many new experiences.

Stakeholder Conflicts -
Since Uber is one of the famous brands in the ride-hailing app industry, meeting
stakeholders' conflicts is inevitable thing for Uber. Poor working condition is one
of the most famous conflicts in Uber that leads to many other consequences—for
example, heavy dependency on the workforce, exploitative business model and
employee retention. First, currently, most companies are trying and developing in
support and offering many employee incentives. Uber, on the other hand, does
not support this at all. Most of the time, Uber's drivers are primarily on their own,
which puts them in danger for security. They also must pay for gas, repairs, and
insurance. As a result, many drivers were dissatisfied with this and started to have
unpredictable behaviours against the corporate. Over 103 Uber drivers in the U.S.
were accused of sexual harassment and abuse, which creates a poor image of the
company culture. Moreover, Uber is known for depending heavily on its large
workforce. Over 1000 food delivery drivers in Brazil participated in a strike to
demand better working conditions in June 2020. In the U.S., about 300,000 Uber
drivers filed lawsuits against the company over the company's minimum wage
policy. Lastly, multiple government and workers' unions are agitating for Uber to
change their business model. The Uber business model labels its drivers as
independent contractors rather than employees, depriving them of significant
benefits. Massachusetts and California have filed class-action lawsuits against
Uber for misclassifying its drivers. In conclusion, Uber corporate should discuss its
employee incentive policy and working conditions to save its lousy image with the
public.

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Appendix

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 References

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