Adapted from Exhibit 14.13 in Koller, T., Goedhart, M., & Wessels, D. (2020).

$ million

Today Year 1 Year 2

Revenues 250.0 265.0 280.9
Operating costs (225.0) (238.5) (252.8)
Operating profit 25.0 26.5 28.1

Operating taxes (6.3) (6.6) (7.0)

NOPLAT 18.8 19.9 21.1

Net investment (7.5) (8.0) (8.4)

Free cash flow 11.3 11.9 12.6

Economic profit
NOPLAT 19.9 21.1

Invested capitalt–1 132.5 140.5

Cost of capital, % 10.0% 10.0%
Capital charge 13.3 14.0

Economic profit 6.6 7.0

Continuation value + economic profit 6.6 7.0
Year 1 Year 2
Discount factor 0.9091 0.8264
Discounted economic profit 6.0 5.8

Continuing value
Part 1: Perpetual economic profit

Economic profit CV 8.9

WACC 10%
Perpetual economic profit 88.7

Part 2: New projects' EP

NOPLAT 26.6
Growth 6%
ROINC 15%
WACC 10%
Economic profit for the future 0.5
Perpetual EP of future 5.3
Discountend EP of new projects 133.0
Total continuing value 221.6

Value of operation

Invested capital 132.5 44.44%

PV of economic profit 28.0 9.39%
PV of continuation value 137.6 46.16%
Value of operations 298.1 100.00%
els, D. (2020).

Continuing
Year 3 Year 4 Year 5 value
297.8 315.6 334.6 354.6
(268.0) (284.1) (301.1) (319.2)
29.8 31.6 33.5 35.5

(7.4) (7.9) (8.4) (8.9)

22.3 23.7 25.1 26.6

(8.9) (9.5) (10.0)

13.4 14.2 15.1

22.3 23.7 25.1 26.6

148.9 157.8 167.3 177.3

10.0% 10.0% 10.0% 10.0%
14.9 15.8 16.7 17.7

7.4 7.9 8.4

7.4 7.9 8.4 221.6
Year 3 Year 4 Year 5 Year 5
0.7513 0.6830 0.6209 0.6209
5.6 5.4 5.2 137.6

Continuing value
KVD-formula

NOPLAT(t+1) 19.9
RONIC 15%
Growth 6%
WACC 10%
Total firm value 298.1
Key value drivers, %

Return on new invested capital 15%

Growth rate 6%
Operating taxes 25%
Cost of capital 10%

19.9

IC t 800

NOPAT t+1 100

RONIC 10%
g 3.50%
WACC 8.5
7.7