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INPUTS FOR VALUATION
Current Inputs
Enter the current revenues of the firm =
$435
Enter current capital invested in the firm =
$603
{ As a naïve estimate, you can use BV of debt + BV of Equity)
Enter the current depreciation =
$9
Enter the current capital expenditures for the firm = $16
Enter the change in Working Capital in last year$(170)
=
Enter the value of current debt outstanding = $Enter the number of shares outstanding =
39.84
High Growth Period

Your Inputs

Enter the growth rate in revenues for the next 5 years =

20.00%

What will all operating expenses be as a % of revenues in the fifth
75.00%
year?(Operating expenses include depreciation: This is equal to (1-Pre-tax Operating Margin))
How much debt do you plan to use in financing investments?
Enter the growth rate in capital expenditures & depreciation
Enter working capital as a percent of revenues
Enter the tax rate that you have on corporate income
What beta do you want to use to calculate cost of equity =

0%
10.00%
8.00%
38.00%
0.79

Enter the current long term bond rate =

5.00%

Enter the market risk premium you want to use =

5.50%

Enter your cost of borrowing money =

8.50%

Stable Period
Enter the growth rate in revenues =

8.00% This is high for a long term growth rate.

Enter operating expenses as a % of revenues in stable period = 75.00%
Enter capital expenditures as a percent of depreciation in this period
150.00% See capital expenditure worksheet (capex.xls) for details.
How much debt do you plan to use in financing investments?

0.00%

Enter interest rate of debt in stable period =

0.00%

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Page 2

What beta do you want to use in the stable period =

1.10
ESTIMATED CASHFLOWS

Base

1

2

3

4

5

6

7

8

9

10

Growth in Revenue

20.00%

20.00%

20.00%

20.00%

20.00%

17.60%

15.20%

12.80%

10.40%

8.00%

Growth in Deprec'n

10.00%

10.00%

10.00%

10.00%

10.00%

9.60%

9.20%

8.80%

8.40%

8.00%

Revenues

$461

$553

$664

$797

$956

$1,147

$1,349

$1,554

$1,753

$1,935

$2,090

Operating Expenses
% of Revenues
- $ Operating Expenses
EBIT
Tax Rate

EBIT (1-t)
+ Depreciation
- Capital Expenditures
- Change in WC
= FCFF

69.70%

75.00%

75.00%

75.00%

75.00%

75.00%

$321

$384

$477

$581

$707

$860

$1,012

$1,166

$1,315

$1,451

$1,568

$140

$169

$187

$216

$249

$287

$337

$389

$438

$484

$523

38.00%

69.50%

38.00%

71.82%

38.00%

72.88%

38.00%

73.94%

38.00%

75.00%

38.00%

38.00%

38.00%

38.00%

38.00%

38.00%

$87

$105

$116

$134

$154

$178

$209

$241

$272

$300

$324

$9

$10

$11

$12

$13

$14

$15

$17

$18

$20

$21

$16

$17

$19

$21

$23

$25

$27

$28

$29

$31

$32

$(170)
$250

$7

$9

$11

$13

$15

$16

$16

$16

$15

$12

$89

$99

$114

$131

$151

$182

$213

$245

$274

$301

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Terminal Value (in '15)

$10,655
COSTS OF EQUITY AND CAPITAL
1

Cost of Equity

2

3

4

5

6

7

8

9

10

9.35%

9.35%

9.35%

9.35%

9.35%

9.69%

10.03%

10.37%

10.71%

11.05%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

After-tax Cost of Debt

5.27%

5.27%

5.27%

5.27%

5.27%

4.22%

3.16%

2.11%

1.05%

0.00%

Proportion of Debt

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

Proportion of Equity

Cost of Capital
Cumulative WACC

Present Value

9.35%

9.35%

9.35%

9.35%

9.35%

9.69%

10.03%

10.37%

10.71%

11.05%

109.35%

119.56%

130.74%

142.95%

156.31%

171.45%

188.64%

208.20%

230.50%

255.97%

$82

$82

$87

$92

$97

$106

$113

$118

$119

$4,280

FIRM VALUATION
Value of Firm
- Value of Debt
Value of Equity
Value of Equity per Share

$5,175
$$5,175
$129.90

2007
Value of Firm by year
$ Value of Debt

$5,175
$-

2008
$5,570
$-

2009
$5,991
$-

2010
$6,438
$-

2011
$6,908
$-

Page 3

2012
$7,402
$-

2013
$7,938
$-

2014
$8,520
$-

2015
$9,159
$-

2016
$9,866
$-

EVA Valuation
Base
EBIT (1-t)
- WACC (CI)
EVA
Terminal EVA
PV
PV of EVA
+ Capital Invested
+ PV of Chg Capital in Yr 10
= Firm Value

1
$87

Cumulated WACC

3
$116
$58
$58

4
$134
$59
$75

$154
$61
$93

$44
$49
$57
$65
$4,777
$603
$(205) This reconciles the assumptions on stable growth, ROC and Capital I

$5,175

WACC
ROC
Capital Invested
Calculation of Capital Invested
Initial
+ Net Cap Ex
+ Chg in WC
Ending

2
$105
$56
$48

9.35%
17.35%
$603

$603

$603

$603
$8
$7
$618
109.35%

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9.35%
18.76%
$618

$618
$9
$9
$636
119.56%

9.35%
21.07%
$636

$636
$9
$11
$656
130.74%

9.35%
23.56%
$656

$656
$10
$13
$679
142.95%

EVA Valuation
5

6

7

8

9

10

$178
$63
$114

$209
$68
$141

$241
$74
$167

$272
$79
$193

$300
$84
$216

$73

$82

$89

$93

$94

$324
$90
$234
$10,343
$4,132

owth, ROC and Capital Invested

9.35%
26.19%
$679

$679
$11
$15
$706
156.31%

9.69%
29.64%
$706

$706
$11
$16
$733
171.45%

10.03%
32.86%
$733

$733
$11
$16
$761
188.64%

10.37%
35.71%
$761

$761
$11
$16
$788
208.20%

Page 5

10.71%
38.07%
$788

$788
$11
$15
$813
230.50%

11.05%
39.83%
$813

$813
$11
$12
$837
255.97%

EVA Valuation
Terminal Year
$350
$34
$315

11.05%
112.36%
$311 (Adjusted to reflect terminal ROC)

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Sheet4
High Growth
Revenue
Operating Margin
No debt
Tax Rate
Cost of Capital

Revenue
Operating Margin
Gross Profit
Tax %
EBIT(1-t)
Depreciation
Change in Working Capital
Capex
FCFF
Terminal Value in year 10

Transition
Revenue
Slow to 15%
Operating Margin Increase to 35%
No debt
Tax rate 38%

20%
30%
38%
9.35%

Base Year
Year 1
Year 2
461
553.2
30.00%
30.00%
138.3
165.96
38%
38%
85.75
102.9
9
9.9
$0
7.38
16
17.28
$79
88.14

Present Value Calculations
$78.75

78.75

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Year 3
663.84
30.00%
199.15
38%
123.47
10.89
8.85
18.66
106.85

796.61
30.00%
238.98
38%
148.17
11.98
10.62
20.16
129.37

Sheet4

Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
955.93
1147.12
1347.86
1563.52
1790.23
2022.96
30.00%
30.50%
31%
32%
33%
34%
286.78
349.87
417.84
500.33
590.78
687.81
38%
38%
38%
38%
38%
38%
177.8
216.92
259.06
310.2
366.28
426.44
13.18
14.49
15.22
15.98
16.78
17.62
12.75
15.29
16.06
17.25
18.14
18.62
21.77
23.51
25.39
27.42
29.61
31.98
156.47
192.61
232.83
281.51
335.31
393.46

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Sheet4

Year 10
2265.71
35%
793
38%
491.66
18.5
19.42
34.54
393.46
14164.4

Page 9