You are on page 1of 9

Page 1

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? 0%

Enter the growth rate in capital expenditures & depreciation 10.00%

Enter working capital as a percent of revenues 8.00%

Enter the tax rate that you have on corporate income 38.00%

What beta do you want to use to calculate cost of equity = 0.80

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 = 7.00%

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%

Page 1
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% 17.40% 14.80% 12.20% 9.60% 7.00%

Growth in Deprec'n 10.00% 10.00% 10.00% 10.00% 10.00% 9.40% 8.80% 8.20% 7.60% 7.00%

Revenues $461 $553 $664 $797 $956 $1,147 $1,347 $1,546 $1,735 $1,901 $2,034

Operating Expenses

% of Revenues 69.70% 69.50% 71.82% 72.88% 73.94% 75.00% 75.00% 75.00% 75.00% 75.00% 75.00%

- $ Operating Expenses $321 $384 $477 $581 $707 $860 $1,010 $1,160 $1,301 $1,426 $1,526

EBIT $140 $169 $187 $216 $249 $287 $337 $387 $434 $475 $509

Tax Rate 38.00% 38.00% 38.00% 38.00% 38.00% 38.00% 38.00% 38.00% 38.00% 38.00% 38.00%

EBIT (1-t) $87 $105 $116 $134 $154 $178 $209 $240 $269 $295 $315

+ Depreciation $9 $10 $11 $12 $13 $14 $15 $17 $18 $19 $21

- Capital Expenditures $16 $17 $19 $21 $23 $25 $27 $28 $29 $30 $31

- Change in WC $(170) $7 $9 $11 $13 $15 $16 $16 $15 $13 $11

= FCFF $250 $89 $99 $114 $131 $151 $182 $213 $243 $271 $294

Page 2
Page 3

Terminal Value (in '15) $7,775

COSTS OF EQUITY AND CAPITAL

1 2 3 4 5 6 7 8 9 10

Cost of Equity 9.40% 9.40% 9.40% 9.40% 9.40% 9.73% 10.06% 10.39% 10.72% 11.05%

Proportion of Equity 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%

Cost of Capital 9.40% 9.40% 9.40% 9.40% 9.40% 9.73% 10.06% 10.39% 10.72% 11.05%

Cumulative WACC 109.40% 119.68% 130.93% 143.24% 156.71% 171.95% 189.25% 208.92% 231.31% 256.87%

Present Value $82 $82 $87 $92 $96 $106 $112 $116 $117 $3,141

FIRM VALUATION

Value of Firm $4,032

- Value of Debt $-

Value of Equity $4,032

Value of Equity per Share $101.20

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Value of Firm by year $4,032 $4,321 $4,629 $4,950 $5,284 $5,630 $5,996 $6,386 $6,807 $7,266

$ Value of Debt $- $- $- $- $- $- $- $- $- $-

Page 3
EVA Valuation

Base 1 2 3 4
EBIT (1-t) $87 $105 $116 $134 $154
- WACC (CI) $57 $58 $60 $62
EVA $48 $58 $74 $93
Terminal EVA
PV $44 $48 $57 $65
PV of EVA $3,627
+ Capital Invested $603
+ PV of Chg Capital in Yr 10 $(198) This reconciles the assumptions on stable growth, ROC and Capital I
= Firm Value $4,032

WACC 9.40% 9.40% 9.40% 9.40%


ROC 17.35% 18.76% 21.07% 23.56%
Capital Invested $603 $618 $636 $656

Calculation of Capital Invested


Initial $603 $603 $618 $636 $656
+ Net Cap Ex $8 $9 $9 $10
+ Chg in WC $7 $9 $11 $13
Ending $603 $618 $636 $656 $679

Cumulated WACC 109.40% 119.68% 130.93% 143.24%

Page 4
EVA Valuation

5 6 7 8 9 10
$178 $209 $240 $269 $295 $315
$64 $69 $74 $79 $84 $89
$114 $140 $166 $190 $210 $226
$7,453
$73 $81 $88 $91 $91 $2,989

owth, ROC and Capital Invested

9.40% 9.73% 10.06% 10.39% 10.72% 11.05%


26.19% 29.58% 32.70% 35.39% 37.50% 38.94%
$679 $706 $733 $760 $786 $810

$679 $706 $733 $760 $786 $810


$11 $11 $11 $11 $11 $10
$15 $16 $16 $15 $13 $11
$706 $733 $760 $786 $810 $831

156.71% 171.95% 189.25% 208.92% 231.31% 256.87%

Page 5
EVA Valuation

Terminal Year
$337
$36
$302

11.05%
104.93%
$322 (Adjusted to reflect terminal ROC)

Page 6
Sheet4

High Growth Transition


Revenue 20% Revenue Slow to 10%
Operating Margin 30% Operating Margin Increase to 35%
No debt No debt
Tax Rate 38% Tax rate 38%
Cost of Capital 9.35%

Base Year Year 1 Year 2 Year 3


Revenue 461 553.2 663.84 796.61
Operating Margin 30.00% 30.00% 30.00% 30.00%
Gross Profit 138.3 165.96 199.15 238.98
Tax % 38% 38% 38% 38%
EBIT(1-t) 85.75 102.9 123.47 148.17
Depreciation 9 9.9 10.89 11.98
Change in Working Capital $0 7.38 8.85 10.62
Capex 16 17.28 18.66 20.16
FCFF $79 88.14 106.85 129.37
Terminal Value in year 10

Present Value Calculations


$78.75 80.6 91.33 102.39
Firm Value
Equity Value $8,642.04
Debt Value -
Shares Outstanding 39.04
Per Share Value $221

Page 7
Sheet4

Year 4 Year 5 Year 6 Year 7 Year 8 Year 9


955.93 1147.12 1307.71 1477.71 1655.04 1837.09
30.00% 30.50% 31% 32% 33% 34%
286.78 349.87 405.39 472.87 546.16 624.61
38% 38% 38% 38% 38% 38%
177.8 216.92 251.34 293.18 338.62 387.26
13.18 14.49 15.22 15.98 16.78 17.62
12.75 15.29 12.85 13.6 14.19 14.56
21.77 23.51 25.39 27.42 29.61 31.98
156.47 192.61 228.32 268.14 311.6 358.33

115.3 133.76 147.88 163.1 175.55 188.59

Page 8
Sheet4

Year 10
2020.8
35%
707.28
38%
438.51
18.5
14.7
34.54
407.77
14679.87

203.89
7160.91

Page 9