WALL STREET PREP - BUILDING A SIMPLE DISCOUNTED CASH FLOW MODEL

Valuation Date: 1/1/2013

Share Price on Valuation Date: $25.00
Diluted Shares Outstanding 500.0

Select Operating Data

Projected Annual Forecast
2010A 2011A 2012A 2013P 2014P 2015P 2016P 2017P
Revenue $5,300.0 $5,700.0 $6,000.0 $6,600.0 $7,326.0 $8,205.1 $9,271.8 $10,477.1
Revenue Growth Rate (%) 10.0% 11.0% 12.0% 13.0% 13.0%

EBITDA $2,000.0 $2,080.0 $2,150.0 $2,310.0 $2,564.1 $2,871.8 $3,245.1 $3,667.0

EBITDA Margin (%) 35.0% 35.0% 35.0% 35.0% 35.0%

EBIT 1,700.0 1,750.0 1,800.0 $1,980.0 $2,197.8 $2,461.5 $2,781.5 $3,143.1

EBIT Margin (%) 30.0% 30.0% 30.0% 30.0% 30.0%

Depreciation & Amortization $300.0 $330.0 $350.0 $369.6 $388.3 $336.4 $435.8 $461.0
D&A as a % of revenue 5.6% 5.3% 4.1% 4.7% 4.4%

Select Balance Sheet And Other Data

Projected Annual Forecast
2010A 2011A 2012A 2013P 2014P 2015P 2016P 2017P
Cash $700.0 $1,000.0 $1,500.0 1,500.0 1,500.0 1,500.0 1,500.0 1,500.0
Accounts Receivable 1,100.0 1,250.0 1,350.0 1,485.0 1,648.4 1,846.2 2,086.2 2,357.4
Inventories 900.0 925.0 935.0 949.0 1,001.2 1,092.3 1,200.5 1,319.3
Prepaid Expenses 50.0 63.0 75.0 89.7 106.5 123.1 139.1 160.4

Accounts Payable $930.0 $960.0 $1,000.0 $1,015.0 $1,070.8 $1,168.3 $1,283.9 $1,411.0
Accrued Expenses 90.0 88.0 93.0 102.3 113.6 127.2 143.7 162.4

Debt 2,300.0 4,750.0 4,250.0 4,250.0 4,250.0 4,250.0 4,250.0 4,250.0

Capital Expenditures 455.0 488.0 535.0 588.5 653.2 731.6 826.7 934.2

Accounts Receivable Growth (%) 10.0% 11.0% 12.0% 13.0% 13.0%

Inventories Growth (%) 1.5% 5.5% 9.1% 9.9% 9.9%
Prepaid Expenses Growth (%) 19.6% 18.7% 15.6% 13.0% 15.3%
Accounts Payable Growth (%) 1.5% 5.5% 9.1% 9.9% 9.9%
Accrued Expenses Growth (%) 10.0% 11.0% 12.0% 13.0% 13.0%
Capital Expenditures Growth (%) 10.0% 11.0% 12.0% 13.0% 13.0%

Free Cash Flow Buildup

$mm Projected Annual Forecast
2010A 2011A 2012A 2013P 2014P 2015P 2016P 2017P
Period 1 2 3 4 5
Total Revenues $6,600.0 $7,326.0 $8,205.1 $9,271.8 $10,477.1
EBITDA $2,310.0 $2,564.1 $2,871.8 $3,245.1 $3,667.0
EBIT 1,980.0 2,197.8 2,461.5 2,781.5 3,143.1
Tax rate 40.0% 40.0% 40.0% 40.0% 40.0%
EBIAT $1,188.0 $1,318.7 $1,476.9 $1,668.9 $1,885.9
Depreciation & Amortization $ 369.6 $ 388.3 $ 336.4 $ 435.8 $ 461.0
Accounts receivable (135.0) (163.4) (197.8) (240.0) (271.2)
Inventories (14.0) (52.2) (91.1) (108.1) (118.8)
Prepaid expenses (14.7) (16.8) (16.6) (16.0) (21.3)
Accounts payable 15.0 55.8 97.4 115.7 127.1
Accrued expenses 9.3 11.3 13.6 16.5 18.7
Capital expenditures (53.5) (64.7) (78.4) (95.1) (107.5)
Unlevered free cash flows $1,364.7 $1,477.0 $1,540.5 $1,777.6 $1,973.9
Discount Rate (WACC) 12.0% 12.0% 12.0% 12.0% 12.0%
Present value of free cash flows $1,218.6 $1,177.7 $1,096.9 $1,130.3 $1,120.7
Sum of present values of FCFs $5,744.3 Stage 1 of the FCF analysis

Terminal Value
Growth in perpetuity method:
Long term growth rate 4.0%
WACC 12.0%
Free cash flow (t+1) 2,052.8
Terminal Value 25,706.3
Present Value of Terminal Value ### Stage 2 of the FCF analysis

Weighted Average Cost of Capital (WACC)

Share Price $25.00
Diluted Shares Outstanding 500.0
Cost of Debt 5.2%
Tax Rate 40.0%
After-tax Cost of Debt 3.1%
Cost of Equity 15.0% =rf + B(market risk premium)

Total Debt ($) $4,250.0

Total Equity ($) 12,500.0
Total Capital $16,750.0

Debt Weighting 25.4%

Equity Weighting 74.6%

WACC = 12.0%

Enterprise Value to Equity Value

Enterprise Value $20,340.1
Less: Net debt 2,750.0 Err:509
Equity Value $17,590.1
Diluted Shares Outstanding 500.0
Equity Value Per Share $35.18

Q: If the stock is trading at $25.00 a share and you believe that your DCF analysis is accurate, would you buy or sell stock in this company? Why?
A: Buy, because according to intrisic valuation, stock should actually be valued at $29.99 but market value is $25.00. Therefore, the stock is "cheap."
WALL STREET PREP - FINANCIAL MODELING QUICK LESSON - BUILDING A SI
Valuation Date: 1/1/2013
Share Price on Valuation Date: $25.00
Diluted Shares Outstanding 500.0

Select Operating Data

Project
2010A 2011A 2012A 2013P
Revenue $5,300.0 $5,700.0 $6,000.0 $6,600.0
Revenue Growth Rate (%) 10.0%

EBITDA $2,000.0 $2,080.0 $2,150.0 $2,310.0

EBITDA Margin (%) 35.0%

EBIT 1,700.0 1,750.0 1,800.0 $1,980.0

EBIT Margin (%) 30.0%

Depreciation & Amortization $300.0 $330.0 $350.0 $369.6

D&A as a % of revenue 5.6%

Select Balance Sheet And Other Data

Project
2010A 2011A 2012A 2013P
Cash $700.0 $1,000.0 $1,500.0 1,500.0
Accounts Receivable 1,100.0 1,250.0 1,350.0 1,485.0
Inventories 900.0 925.0 935.0 949.0
Prepaid Expenses 50.0 63.0 75.0 89.7

Accounts Payable $930.0 $960.0 $1,000.0 $1,015.0

Accrued Expenses 90.0 88.0 93.0 102.3

Debt 2,300.0 4,750.0 4,250.0 4,250.0

Gross PP&E (increases annually be capex) 455.0 488.0 535.0 588.5

Accounts Receivable Growth (%) 10.0%

Inventories Growth (%) 1.5%
Prepaid Expenses Growth (%) 19.6%
Accounts Payable Growth (%) 1.5%
Accrued Expenses Growth (%) 10.0%
Capital Expenditures Growth (%) 10.0%

Free Cash Flow Buildup

$mm Project
2010A 2011A 2012A 2013P
Period 1
Total Revenues $6,600.0
EBITDA 2,310.0
EBIT 1,980.0
Tax rate 40.0%
EBIAT $1,188.0
Depreciation & Amortization 369.6
Accounts receivable (135.0)
Inventories (14.0)
Prepaid expenses (14.7)
Accounts payable 15.0
Accrued expenses 9.3
Capital expenditures (53.5)
Unlevered free cash flows $1,364.7
Discount Rate (WACC) 12.0%
Present value of free cash flows $1,218.6
Sum of present values of FCFs $5,744.3

Terminal Value
Growth in perpetuity method:
Long term growth rate 4.0%
WACC 12.0%
Free cash flow (t+1) 2,052.8
Terminal Value 25,706.3
Present Value of Terminal Value ###

WACC
Share Price $25.00
Diluted Shares Outstanding 500.0
Cost of Debt 5.2%
Tax Rate 40.0%
After-tax Cost of Debt 3.1%
Cost of Equity 15.0%

Total Debt ($) $4,250.0

Total Equity ($) 12,500.0
Total Capital $16,750.0

Debt Weighting 25.4%

Equity Weighting 74.6%

WACC = 12.0%

Enterprise Value to Equity Value

Enterprise Value $20,340.1
Less: Net debt 2,750.0
Equity Value $17,590.1
Diluted Shares Outstanding 500.0
Equity Value Per Share $35.18

Q: If the stock is trading at $25.00 a share and you believe that your DCF analysis is accurate, would you b
A: Buy, because according to intrisic valuation, stock should actually be valued at $29.99 but market value
N - BUILDING A SIMPLE DISCOUNTED CASH FLOW MODEL

Projected Annual Forecast

2014P 2015P 2016P 2017P
$7,326.0 $8,205.1 $9,271.8 $10,477.1
11.0% 12.0% 13.0% 13.0%

$2,564.1 $2,871.8 $3,245.1 $3,667.0

35.0% 35.0% 35.0% 35.0%

$2,197.8 $2,461.5 $2,781.5 $3,143.1

30.0% 30.0% 30.0% 30.0%

$388.3 $336.4 $435.8 $461.0

5.3% 4.1% 4.7% 4.4%

Projected Annual Forecast

2014P 2015P 2016P 2017P
1,500.0 1,500.0 1,500.0 1,500.0
1,648.4 1,846.2 2,086.2 2,357.4
1,001.2 1,092.3 1,200.5 1,319.3
106.5 123.1 139.1 160.4

$1,070.8 $1,168.3 $1,283.9 $1,411.0

113.6 127.2 143.7 162.4

4,250.0 4,250.0 4,250.0 4,250.0

653.2 731.6 826.7 934.2

11.0% 12.0% 13.0% 13.0%

5.5% 9.1% 9.9% 9.9%
18.7% 15.6% 13.0% 15.3%
5.5% 9.1% 9.9% 9.9%
11.0% 12.0% 13.0% 13.0%
11.0% 12.0% 13.0% 13.0%

Projected Annual Forecast

2014P 2015P 2016P 2017P
2 3 4 5
$7,326.0 $8,205.1 $9,271.8 $10,477.1
2,564.1 2,871.8 3,245.1 3,667.0
2,197.8 2,461.5 2,781.5 3,143.1
40.0% 40.0% 40.0% 40.0%
$1,318.7 $1,476.9 $1,668.9 $1,885.9
388.3 336.4 435.8 461.0
(163.4) (197.8) (240.0) (271.2)
(52.2) (91.1) (108.1) (118.8)
(16.8) (16.6) (16.0) (21.3)
55.8 97.4 115.7 127.1
11.3 13.6 16.5 18.7
(64.7) (78.4) (95.1) (107.5)
$1,477.0 $1,540.5 $1,777.6 $1,973.9
12.0% 12.0% 12.0% 12.0%
$1,177.7 $1,096.9 $1,130.3 $1,120.7
s accurate, would you buy or sell stock in this company? Why?
$29.99 but market value is $25.00. Therefore, the stock is "cheap."