DISCOUNTEDCASHFLOWVALUATIONWORKSHEET

DISCOUNTED CASHFLOW VALUATION

Required rate of return inputs
Do you want to input the cost of equity directly ?

No

(Yes or No)

If yes, enter the cost of equity for use in valuation

(in percent)

If not, enter the following:

Beta of the stock

1.15

Riskless rate

9.00%

(in percent)

Risk premium over riskless rate

5.50%

(in percent)

$5.43

(in currency)

No

(Yes or No)

General Inputs
What is the current earnings per share of the firm?
Is this EPS negative or abnormally low or high?
If yes, enter the normalized earnings per share

What is the current dividend payout ratio?

(In currency)

26.00%

(in percent)

Do you want to change this payout ratio for high growth period?
If so, enter the payout ratio to be used :

No
(in percent)

Enter the following information from the firm's financial statements::

Total Debt outstanding
Interest Expense on this debt

$537.00

(in currency)

$40.00

(in currency)

Book Value of Equity

$1,850.00 (in currency)

Number of shares outstanding

67.955801

(in units)

(Yes or No)

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Market price per share

$88.00

Tax Rate

(in currency)

34%

Enter the following information if you want to compute the FCFE Value
Total Revenues

$6,285.00 (in currency)

Working Capital as % of Revnue

15.00%

(in percent)

Capital Spending

$421.33

(in currency)

Depreciation

$300.00

(in currency)

Enter the following information to compute growth in net income in high growth period:
Do you want to use the historical growth rate in earn
If yes, enter the EPS from five years ago

Yes

(Yes or No)

$3.15

(in currency)

Do you want to compute the growth rate from fundamentals?

Yes

(Yes or No)

If yes, note that based upon current inputs, the fundamentals are as follows:
ROA
D/E

16.56%

Interest rate

0.089797672 Retention

7.45%
0.74

Do you want to change these inputs for the high growth period?

No

(Yes or No)

Yes

(Yes or No)

If yes, enter the new values for these variables:

ROC
D/E

16.56%

Interest rat

0.089797672 Retention

7.45%
0.74

Do you have an outside projection of growth (Analysts, VL) ?

If yes, enter the projected growth rate in earnings

9.50%

(in percent)

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Enter the weights to be assigned to these estimates of growth

Fundamental growth

100.00%

(in percent)

Analyst projection

0.00%

(in percent)

Historical growth

0.00%

(in percent)

Do you expect capital spending and depreciation to grow at the same rate as

Yes

(Yes or No)

If no, enter the following for the high growth period:

Growth rate in capital spending

(in percent)

Growth rate in depreciation

(in percent)

AFTER HIGH GROWTH PERIOD

What approach do you want to use to calculate terminal price?

(Enter 1 if Gordon or 2 if PE)

If Gordon Growth model is chosen, enter the following inputs:

Stable growth rate after high growth period

6.00%

(in percent)

Do you want the payout ratio to be computed from fundamentals

If no, enter the payout ratio for the stable growth phase

If yes, the fundamentals from the high growth period are as follows:
ROA
D/E

16.56%

Interest rate

0.089797672 Retention

7.45%
0.74

Yes

(Yes or No)

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Do you want to change these fundamentals?

Yes

(Yes or No)

If yes, enter the new values for these fundamentals for the steady state:
ROA
D/E

16.56%

Interest rate

7.45%

0.089797672 Retention

0.74

Do you want capital spending to offset depreciation in stable growth phase?

No

(Yes or No)

If no,enter the capital expenditures as a percent of depreciation in stable gr

110%

(in percent)

Do you want to change the beta for the stable growth phase?
If yes, enter the beta for the stable growth phase

1.00

If PE ratio approach is chosen, enter the following input:

PE ratio at the end of the high growth phase

15.00

Yes

(Yes or No)

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VALUATION WITH DDM AND FCFE MODELS
STEP 1: Estimate the required rate of return for stockholders:
Beta=
1.15
Riskfree Rate =
9.00%
Exp. Return =
15.33%
Market risk premium =
5.50%
STEP 2: Estimate the growth rate in earnings per share
Payout ratio=
26.00%
Debt =
537
Net Income=
$369
Share Price= $88.00
Interest Exp.
$40
# Shares = 67.9558
Total Assets=
$2,387
Current EPS
$5.43
Revenues =
$6,285
Weights
Growth rate from fundamentals =
13.03% 100.00%
Projected growth rate (from VL/analysts
9.50%
0.00%
Historical growth rate (Last 5 years) =
11.51%
0.00%
Weighted Average growth rate =
13.03%

Depreciation (Total) =
300
Capital spending (Total) 421.326
Work. Cap. as% of Rev= 15.00%
EPS five years ago=
$3.15

First 5 yrs
After yr 5

ROC
D/E Ratio
Interest rate
16.56%
8.98%
7.45%
16.56%
8.98%
7.45%
(Change these if you want after year 5)

STEP 3: Inputs for terminal value

Approach used to estimate terminal value (1: Infinite growth; 2: PE ratio)=
1
Beta of the stock for the stable growth phase =
1.00
If infinite growth rate model chosen, enter the growth rate after year 5
Growth rate after year 5 =
6.00%
Payout ratio after year 5 =
65.93% Calculated based upon fundamentals
If PE ratio model chosen, enter the PE ratio to be used after year 5
PE ratio for earnings after year 5=
STEP 4: Inputs for free cashflow valuation
Growth rate in depreciation per share = 13.03%
Growth rate in cap. spending per share
13.03%

(Default: If not entered, = to the weighted growth rate in income)

(Default: If not entered, = to the weighted growth rate in income)

STEP 5: Estimate the value from the dividend discount model

from the Free Cashflow model

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Year
1
2
3
4
5

EPS
$6.14
$6.94
$7.84
$8.86
$10.02

DPS
$1.60
$1.80
$2.04
$2.30
$2.60

VALUE OF THE STOCK (DDM) =

VALUE OF THE STOCK (FCFE) =

TERM. PR.

$82.37
$47.03
$59.49

Deprec'n
$4.99
$5.64
$6.38
$7.21
$8.15

Cap. Exp.(Cex-Dep)(1-)WC-Ch(1-)
$7.01
$1.85
$1.66
$7.92
$2.09
$1.88
$8.95
$2.37
$2.12
$10.12
$2.67
$2.40
$11.44
$3.02
$2.71

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FCFE/sh
$2.63
$2.97
$3.36
$3.79
$4.29

Term. Val.

$99.04

DISCOUNTEDCASHFLOWVALUATIONWORKSHEET
Sensitivity to Length of High Growth Period
If growth lasts DDM Value FCFE Value
1
$45.14
$50.83
2
$45.63
$53.06
3
$46.10
$55.25
4
$46.57
$57.39
5
$47.03
$59.49
6
$47.48
$61.55
7
$47.92
$63.57
8
$48.35
$65.55
9
$48.77
$67.49
10
$49.18
$69.39

These FCFE values are estimated based upon

the following assumptions
a. Earnings and depreciation grow at the same
rate as earnings.
b. Terminal Value is calculated using the same
assumptions as the base case

If the extraordinary growth period you want is not in this table, enter below
Enter the length of the high growth per
15
DDM Value given this high growth peri
FCFE Value given this high growth peri

$51.13
$78.35

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