CAPITAL STRUCTURE

Shares outstanding in 2001 273.3

Current Share Price (P0) $42.09
Market Value of Equity $11,503.20
Current outstanding Debt $1,296.60
Total Value $12,799.80

We 89.87
Wd 10.13

COST OF DEBT

N 40 years
PV -95.6
PMT 3.375
FV 100

I/YR 3.57%

Cost of Debt Rd 7.13%

COST OF EQUITY
a) Using CAPM

Risk-Free Rate (Rf) 5.74%

Equity Risk Premium (Rm - Rf) 5.90%
Return on Market (Rm) 11.64%
Beta (b) 0.69

Cost of Equity (Re) 9.81%

b) Using DDM

Dividend (D0) 0.48

Growth Rate (g) 5.50%
Next Dividend (D1) 0.5064
Current Stock Price (P0) $42.09

Cost of Equity (Re) 6.70%

c) Using ECR
Projected EPS for next year (E 1) $2.32
Current Stock Price (P0) $42.09

Cost of Equity (Re) 5.51%

WACC Calculation

Using CAPM Using DDM

We 89.8701518469395 We 89.8701518469395
Wd 10.1298481530606 Wd 10.1298481530606
Cost of Debt Rd 7% Cost of Debt Rd 0.0713
Cost of Equity (Re) 10% Cost of Equity (Re) 7%
Tax (t) 38% Tax (t) 38%

WACC 9.26 WACC 6.47

The WACC we get using the CAPM model is in the range 50.92 - 55.68 of equity value (Exhibit 2) which is higher than curren

Using the WACC as 9.26 (using the CAPM model), and the Cash Flow values given in Exhibit 2, we get the N

Enterprise Value $15,142.97

Curent outstanding debt $1,296.60
Equity Value $13,846.37
# of shares outstanding 271.5 Exhibit 2
Equity Value per share $51.00
Given

(20years*2)
(current price)
(6.75%*100/2)

(using Financial Calculator)

20 year current yield on US Treasuries

Geometric Mean of Historical Risk Premiums
Equity Risk Premium + Risk-Free Rate
Most recent value of beta

Re = Rf + b(Rm-Rf)

Dividend for the year 2000

Given
D1 = D0*(1+g)
 Using ECR

We 89.8701518469395
Wd 10.1298481530606
Cost of Debt Rd 7%
Cost of Equity (Re) 6%
Tax (t) 38%

WACC 5.40

hibit 2) which is higher than current stock price, therefore we use this value of WACC.

ues given in Exhibit 2, we get the NPV of the cash flow as $ 15,142.97 (Using Financial Calculator)
GIVEN DATA

Without Share
(in thousands)
Repurchase With Share Repurchase
Long Term Debt $50,000
Interest Rate Debt 6.75%
# of Shares Outstanding 59,052 45,052
Tax Rate 40% 40%

2007 Income Statement (in Thousands)

2006 (given) Without Share Repurchase

Revenue 342,251 393,760
Less: COGS 249,794 277,725
Gross Profit 92,458 116,035
Less: SG&A 28,512 40,994
Operating Income 63,946 75,041
Plus: Depreciation & Amortization 9,914 9,914
EBITDA 73,860 89,001
EBIT 63,946 79,087
Less: Interest 0 0
Plus: Other Income (Expense) 13,506 13,506
Earnings Before Tax 77,451 92,593
Less: Taxes 23,821 37,037
Net Income 53,630 55,556
 GROWTH/MARGINS 2004 2005 2006 2004-20052005-2006
Revenue 3.20% 5.50% 11.10% 2.30% 5.60%
Gross Margin 30.00% 28.50% 27.00% -1.50% -1.50%
EBIT Margin 21.40% 19.70% 18.70% -1.70% -1.00%
EBITDA Margin 23.80% 22.40% 21.60% -1.40% -0.80%
Effective Tax Rate 32.00% 31.70% 30.80% -0.30% -0.90%
Net Income Margin 18.20% 17.00% 15.70% -1.20% -1.30%
Dividend Payout Ratio 35.00% 43.60% 52.90% 8.60% 9.30%

With Share Repurchase

393,760
277,725
116,035
40,994
75,041
9,914
89,001
79,087
$3,375
13,506
95,968
38,387
57,581
Avg 2007 Growth Forcasted
4% 15.05%
-1% 25.50%
-1% 17.35%
-1% 20.50%
-1% 30.20%
-1% 14.45%
9% 61.85%
 2007 Balance Sheet (in Thousands)

Without Share Repurchase With Share Repurchase

Assets
Cash & Cash Equivalents 66,557 16,557
Marketable Securities 164,309 5,309
Accounts Receivable 48,780 48,780
Inventory 54,874 54,874
Other Current Assets 5,157 5,157
Total Current Assets 339,677 130,677
Property, Plant, & Equipment 174,321 174,321
Goodwill 38,281 38,281
Other Assets 39,973 39,973
Total Assets 592,252 383,252

Liabilities & Shareholders' Equity

Accounts Payable 31,936 31,936
Accrued Liabilities 27,761 27,761
Taxes Payable 16,884 16,884
Total Current Liabiliites 76,581 76,581
Other Liabilities 4,814 4,814
Long Term Debt 0 50,000
Deferred Taxes 22,495 22,495
Total Liabilities 103,890 153,890
Shareholders' Equity 488,363 229,362
Total Liabilities & Shareholders'
Equity 592,253 383,252
 Ratio Calculations

Without Share Repurchse With Share Repurchse

Equity Book Value $488,363 229,362
EPS 0.940797602113392 1.27810041729557
ROE 11% 25%
Interest Coverage (EBIT/Interest) 0 23.4332740740741
Debt Ratios
Debt Ratio (Total Debt/Total Assets) 18% 40%
Cash Coverage Ratio ((EBIT+Depreciation)/Interest) 0 2637%
Debt to Equity 21% 67%
Family's Ownership Interest
Shares Owned by Family 36612.24 36612.24
% of Total Shares 62% 81%
WACC
Debt Weight 0 18%
Equity Weight 100% 82%
Equity Beta 0.56 0.56
Cost of Equity (CAPM) 5.80% 5.80%
Cost of Debt 0 6.75%
WACC 5.800% 5%
 Given Data

% Change Yields on US Treasury Securities

(Exhibit 2) Maturity
36% 30 days
121% 60 days
90 days
1 year
129% 5 years
10 years
215% 20 years
30 years

31% Seasoned corporate bond yields

Moody's Aaa
Aa
A
Baa
(30 year risk-free rate and bond Rating A) Ba
B
-5%
ecurities

4.55%
4.73%
4.91%
4.90%
4.91%
5.02%
5.26%
5.10%

nd yields
5.88%
6.04%
6.35%
6.72%
7.88%
8.94%