Background

Earnings per Share = $ 0.38

Capital Spending per Share = $ 1.21
Depreciation per Share = $ 0.17
Revenues per share = $ 7.21
Working Capital as a percent of revenues = 10.00% (This is significantly
Phase 1: High Growth Period
Length of the high growth period = 5 years
Expected growth rate in earnings during the period = 52% (from anal
Capital Spending, depreciation and revenues will grow 20% a year du
Approximately 10% of external financing will come from debt. The b

Phase 2

Length of the transition period = 5 years

Growth rate will decline from 52% in year 5 to 6% in yea
Capital Spending will grow 6% a year in this period, whil
The debt ratio will remain at 10% during this period
The beta will decline linearly from 1.60 in year 5 to 1.20 i
Phase 3
Earnings will grow 6% a year in perpetuity 
Capital expenditures will be 125% of depreciation during
The beta for the stock will be 1.20
 (This is significantly lower than the current WC ratio)

od = 52% (from analyst projections and market growth)

l grow 20% a year during this period (based upon past growth). Working capi
ome from debt. The beta for the high growth period is 1.60.

ar 5 to 6% in year 10 linearly.
this period, while depreciation will continue to grow 12% a yea
this period
in year 5 to 1.20 in year 10.

preciation during the high growth phase Revenues will also grow
owth). Working capital will remain at 10% of revenues

o grow 12% a year. Revenues will increase 12% a year during thi

ues will also grow 6% a year; Working capital will remain 10% o
% a year during this period; working capital will remain 10% of re

will remain 10% of revenues. The debt ratio will remain at 10% d
remain 10% of revenues.

l remain at 10% during this period.

Current High Growth 5 years Transition 5 years

EPS 52% 0.38 Growth 52% linear down to 6%

CAPEX 1.21 20% growing by 6%
Dep 0.17 20% growing by 12%
Revenue Per Share 7.21 20% 12%
NWC % of Rev 10% Stays at 10% of Revenue Unchanged
NWC 0.721 DR 10% Unchanged
Beta 1.6 linear down to 1.2
Risk-free 7.50% rf Unchanged Unchanged
MRP (rm - rf) 5.50% rm-rf Unchanged Unchanged

1 2 3 4 5
EPS 0.58 0.88 1.33 2.03 3.08
CapEx 1.45 1.74 2.09 2.51 3.01
Dep 0.20 0.24 0.29 0.35 0.42
(Cap - Dep)*0.9 1.12 1.35 1.62 1.94 2.33
Revenue 8.65 10.38 12.46 14.95 17.94
NWC 0.87 1.04 1.25 1.50 1.79
(Change in NWC)*0.9 0.13 0.16 0.19 0.22 0.27

FCFE -0.68 -0.63 -0.47 -0.14 0.49

Ke (cost of equity) 0.163 0.163 0.163 0.163 0.163
PV -0.58 -0.46 -0.30 -0.07 0.23
Beta 1.6
ke 16.3 PV show no cash flow (as it is negative) because it is keeping

6 7 8 9 10
Growth 42.80% 33.60% 24.40% 15.20% 6.00%
Beta 1.52 1.44 1.36 1.28 1.2
Ke (cost equity) 15.86 15.42 14.98 14.54 14.1
Ke in decimals 0.1586 0.1542 0.1498 0.1454 0.141
6 7 8 9 10
EPS 4.40 5.88 7.32 8.43 8.94
CapEx 3.19 3.38 3.59 3.80 4.03
Dep 0.47 0.53 0.59 0.67 0.75
(Cap - Dep)*0.9 2.45 2.57 2.69 2.82 2.96
Revenue 20.09 22.50 25.21 28.23 31.62
NWC 2.01 2.25 2.52 2.82 3.16
(Change in NWC)*0.9 0.19 0.22 0.24 0.27 0.30
FCFE 1.76 3.10 4.38 5.34 5.68
PV 0.7152199075 1.08884931 1.33942875 1.42389507311 1.3274
Discount factor 0.405665339 0.35146884 0.30567824 0.26687466618 0.2339

FCFE11 9.13
TV10 FCFE11/(r - gLow) 112.716939
PV of TV10 26.3639749

PV High Growth -1.19

PV Transition 5.89
PV of TV 26.3639749
Value 31.07

Rev11- Rev10
PV TV 26.416147939
 Stable

6%
offset by dep
offsets CAPEX
12%
Unchanged
Unchanged
1.2
Unchanged
Unchanged

EPS = EPS0*(1+52%)^year NI
CAPEX = CAPEX0*(1+20%)^year CAPEX
Depr = Depr0*(1+20%)^year Dep
(CAP - DEPR)(1-DR)
Rev = Rev0*(1+20%)^year

Change in NWC*(1-DR)

rf + B (rm - rf)
PV = FCFE/(1+ke)^year

s negative) because it is keeping investing heavengly to continue to grow

Decrease by
0.092
0.08
rf + B (rm - rf)

11
9.47 EPS6=EPS5*(1+g6)
CAPEX7=CAPEX5*(1+6%)^2
DEP7 = DEP5*(1+12%)^2
0
35.41 Rev7=Rev5*(1+12%)^2
3.54
0.341 Ch in NWC6=(NWC6-NWC5)*0.9
 9.13
PV=FCFE*Discount factor increasing Cash flow

TV is the PV of FCFE11+ at year 10