The Free Cash Flow Business Valu

Instructions: Change any of the forecasting variables shown in red below and observe the effect on the model's outputs in
value conclusion most sensitive? To what variable is it least sensitive?

The Discounted Free Cash Flow Model for a Com

Pie In the Sky Company

Forecasting Variables:
2012 2013 2014
Revenue growth factor 20% 30% 40%
Expected gross profit margin 50% 51% 52%
S, G, & A expense % of revenue 50% 40% 30%
Depr. & Amort. % of revenue 10% 10% 10%
Capital expenditure growth factor 40% 35% 30%
Net working capital to sales ratio 19% 18% 17%

Income tax rate 40%

Assumed long-term sustainable growth rate 5% per year after 2021
Discount rate 20%

2012 2013 2014

Valuation Model Outputs:
Gross profit margin 50% 33% 43%
Net operating profit margin -150% 869% 94%
Free cash flow ($ mil) ($1.5) ($1.7) ($1.7)
Terminal value ($ mil)

PV of Company Operations ($ mil) $5.9

Market Value of Company Assets ($ mil) #REF!

h Flow Business Valuation Model
e the effect on the model's outputs in the section below. To what variable is the business

ee Cash Flow Model for a Complete Business

Pie In the Sky Company

2015 2016 2017 2018 2019 2020 2021

50% 60% 50% 40% 30% 20% 10%
53% 54% 55% 56% 57% 58% 59%
29% 28% 27% 26% 25% 24% 23%
10% 10% 10% 10% 10% 10% 10%
25% 20% -10% -15% -20% -25% -30%
16% 15% 14% 13% 12% 11% 10%

40%
5%
20%

2015 2016 2017 2018 2019 2020 2021

53% 63% 53% 43% 32% 22% 12%

21% 34% 41% 36% 30% 24% 16%
($2.1) ($2.2) ($0.8) $1.2 $3.6 $6.1 $8.1
$57.0
 The Discounted Free Cash Flow Model fo

Actual |--------------------------------------------------------
2011 2012 2013
0 1 2
Total revenue $2,000,000 $2,400,000 $3,120,000

Cost of Goods Sold 1,200,000 1,200,000 1,528,800

Gross profit 800,000 1,200,000 1,591,200

Selling, general and administrative expenses 1,200,000 1,200,000 1,248,000

Earnings before interest, taxes, depr. & amort. (EBITDA) (400,000) 0 343,200

Depreciation and amortization 200,000 240,000 312,000

Earnings before Interest and taxes (EBIT) (600,000) (240,000) 31,200
Available tax-loss carryforwards 0 (600,000) (840,000)
Net taxable earnings 0 0 0

Taxes 0 0 0
Net Operating Profit After-Tax (NOPAT) (600,000) (240,000) 31,200

Add back depreciation and amortization 200,000 240,000 312,000

Subtract Capital Expenditures (1,000,000) (1,400,000) (1,890,000)
Subtract New Net Working Capital (76,000) (129,600)
Free Cash Flow ($1,400,000) ($1,476,000) ($1,676,400)

Terminal value, 2021

Present Value of Free Cash Flows @ 20% (1,400,000) (1,230,000) (1,164,167)

Present Value of Terminal Value
Total Present Value of Company Operations $5,918,060.64
ee Cash Flow Model for a Complete Business

Years Ending December 31

------------------------------------------------------------------------ Forecast ----------------------------------------------------------------------------------------|
2014 2015 2016 2017 2018 2019 2020
3 4 5 6 7 8 9
$4,368,000 $6,552,000 $10,483,200 $15,724,800 $22,014,720 $28,619,136 $34,342,963

2,096,640 3,079,440 4,822,272 7,076,160 9,686,477 12,306,228 14,424,045

2,271,360 3,472,560 5,660,928 8,648,640 12,328,243 16,312,908 19,918,919

1,310,400 1,900,080 2,935,296 4,245,696 5,723,827 7,154,784 8,242,311

960,960 1,572,480 2,725,632 4,402,944 6,604,416 9,158,124 11,676,607

436,800 655,200 1,048,320 1,572,480 2,201,472 2,861,914 3,434,296

524,160 917,280 1,677,312 2,830,464 4,402,944 6,296,210 8,242,311
(808,800) (284,640) 0 0 0 0 0
0 632,640 1,677,312 2,830,464 4,402,944 6,296,210 8,242,311

0 253,056 670,925 1,132,186 1,761,178 2,518,484 3,296,924

524,160 664,224 1,006,387 1,698,278 2,641,766 3,777,726 4,945,387

436,800 655,200 1,048,320 1,572,480 2,201,472 2,861,914 3,434,296

(2,457,000) (3,071,250) (3,685,500) (3,316,950) (2,819,408) (2,255,526) (1,691,645)
(212,160) (349,440) (589,680) (733,824) (817,690) (792,530) (629,621)
($1,708,200) ($2,101,266) ($2,220,473) ($780,016) $1,206,141 $3,591,584 $6,058,418

(988,542) (1,013,342) (892,358) (261,226) 336,612 835,288 1,174,162

--------------------------------|
2021
10
$37,777,260

15,488,676
22,288,583

8,688,770
13,599,813

3,777,726
9,822,087
0
9,822,087

3,928,835
5,893,252

3,777,726
(1,184,151)
(343,430)
$8,143,398

$57,003,784

1,315,204
9206429.295