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Copy of SchwartzMoon(2000) Rational Pricing Internet Cpy

Copy of SchwartzMoon(2000) Rational Pricing Internet Cpy

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03/18/2014

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Spreadsheet Simulation Schwartz Moon Model (2000)
Parameters
Initial Revenue
355.8 million per quarter
Initial loss carry forward
559.0 million
Initial Cash Balance available
700.0 million
Initial expected rate of revenue growth
11.0% per quarter
Initial volatility of revenues
10.0% per quarter
Initial volatility of expected rate of revenue growth
3.0% per quarter
\u03c1
0.0
Long-term rate of growth in revenues
1.5% per quarter
Long-term volatility of the rate of revenue growth
5.0% per quarter
Company's corporate tax rate
35.0%
Risk-free interest rate
r
5.0% per year
Speed of adjustment for rate of growth process
\u03ba
0.07 per quarter
0.07 per quarter
0.07 per quarter
COGS as % of revenues
\u03b1
75.0%
Fixed component of other expenses
F
75.0 million
Variable component of other expenses
\u03b2
19.0%
Market price of risk for revenue factor
0.01 per quarter
- per quarter
Horizon for estimation
T
100.0quarters
Time increment for discrete version of model
1quarter
PRESS F9 (recalculate) to run new simulation
Results
Bankruptcy in period
4.50
yrs.
Final Cash Balance
(4,866.0)million
10X EBITDA Multiple
(110.5)million
Present Value of Firm
-million

R0
L0
X0

\u00b50
\u03c30
\u03b70
Correlation between percentage change in
revenue and change in expected rate of growth
\u00b5lt
\u03c3lt
\u03c4c
Speed of adjustment for the volatility of revenue
process
\u03ba1
Speed of adjustment for the volatility of the rate of
revenue growth process
\u03ba2
\u03bb1
Market price of risk for rate of revenue growth
factor
\u03bb2
\u2206t
\u00b5
96 1
96 4
97 3
98 2
99 1
1
4
7
1 0
1 3
1 6
1 9
2 2
2 5
2 8
3 1
3 4
3 7
4 0
4 3
4 6
4 9
5 2
5 5
5 8
6 1
6 4
6 7
7 0
7 3
7 6
7 9
8 2
8 5
8 8
9 1
9 4
9 7
0 %
2 0 %
4 0 %
6 0 %
80%
100%
120%
140%
160%
180%
Growth Rate of Revenues
Historical mt
Simulated mt
Drift of mt
im
r i
r
r
growt
hin%
-5
0
5
-
1,000
2,000
3,000
4,000
5,000
6,000
2
S i
Historica
l S a le s
(Rt)
Simulate
d S a le s
(Rt)
Drift of (
R t)
Bankrup
tc y lin e
revenuesin$
m
illion
- 5
0
5
( 6 ,0 0 0 )
( 4 ,0 0 0 )
(2,000)
-
2,000
4,000
6,000
8,000
2
Cash Bal
C a s h b a la n c e X t
Loss ca
fo rw a rd
revenuesin$
m
illion
-5
0
5
(90)
(80)
(70)
(60)
(50)
(40)
(30)
(20)
(10)
-
2
Net I
N e t in c o m e
revenuesin$
m
illion
96 1
96 4
97 3
98 2
99 11
4
7
101316192225283134374043464952555861646770737679828588919497
0%
20%
40%
60%
8 0 %
1 0 0 %
1 2 0 %
1 4 0 %
1 6 0 %
H is to r ic a l m t
S im u la te d m t
D rift o f m t
time period (quarter)
growt
hin%
96 1
97 1
98 1
99 12
6
10
14
18
22
26
30
34
38
42
46
50
54
58
62
66
70
74
78
82
86
90
94
98
0%
2%
4%
6%
8%
10%
12%
Growth Rate of Revenues
Simulated mt
Drift of mt
time period (quarter)
growthin%
-5
0
5
(6,000)
(4,000)
( 2 ,0 0 0 )
-
2 ,0 0 0
2
Cash bala
nce Xt
Loss ca
fo rw a rd
revenuesin$
m
illi

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