Ceb Eva

Page 1 INPUTS FOR VALUATION Current Inputs Enter the current revenues of the firm = $435 Enter current capital invested in the firm = $603 { As a naïve estimate, you can use BV of debt + BV of Equity) Enter the current depreciation = $9 Enter the current capital expenditures for the firm = $16 Enter the change in Working Capital in last year$(170) = Enter the value of current debt outstanding = $Enter the number of shares outstanding = 39.84 High Growth Period

Your Inputs

Enter the growth rate in revenues for the next 5 years =

20.00%

What will all operating expenses be as a % of revenues in the fifth 75.00% year?(Operating expenses include depreciation: This is equal to (1-Pre-tax Operating Margin)) How much debt do you plan to use in financing investments? Enter the growth rate in capital expenditures & depreciation Enter working capital as a percent of revenues Enter the tax rate that you have on corporate income What beta do you want to use to calculate cost of equity =

0% 10.00% 8.00% 38.00% 0.79

Enter the current long term bond rate =

5.00%

Enter the market risk premium you want to use =

5.50%

Enter your cost of borrowing money =

8.50%

Stable Period Enter the growth rate in revenues =

8.00% This is high for a long term growth rate.

Enter operating expenses as a % of revenues in stable period = 75.00% Enter capital expenditures as a percent of depreciation in this period 150.00% See capital expenditure worksheet (capex.xls) for details. How much debt do you plan to use in financing investments?

0.00%

Enter interest rate of debt in stable period =

0.00%

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What beta do you want to use in the stable period =

1.10 ESTIMATED CASHFLOWS

Base

1

2

3

4

5

6

7

8

9

10

Growth in Revenue

20.00%

20.00%

20.00%

20.00%

20.00%

17.60%

15.20%

12.80%

10.40%

8.00%

Growth in Deprec'n

10.00%

10.00%

10.00%

10.00%

10.00%

9.60%

9.20%

8.80%

8.40%

8.00%

Revenues

$461

$553

$664

$797

$956

$1,147

$1,349

$1,554

$1,753

$1,935

$2,090

Operating Expenses % of Revenues - $ Operating Expenses EBIT Tax Rate

EBIT (1-t) + Depreciation - Capital Expenditures - Change in WC = FCFF

69.70%

75.00%

75.00%

75.00%

75.00%

75.00%

$321

$384

$477

$581

$707

$860

$1,012

$1,166

$1,315

$1,451

$1,568

$140

$169

$187

$216

$249

$287

$337

$389

$438

$484

$523

38.00%

69.50%

38.00%

71.82%

38.00%

72.88%

38.00%

73.94%

38.00%

75.00%

38.00%

38.00%

38.00%

38.00%

38.00%

38.00%

$87

$105

$116

$134

$154

$178

$209

$241

$272

$300

$324

$9

$10

$11

$12

$13

$14

$15

$17

$18

$20

$21

$16

$17

$19

$21

$23

$25

$27

$28

$29

$31

$32

$(170) $250

$7

$9

$11

$13

$15

$16

$16

$16

$15

$12

$89

$99

$114

$131

$151

$182

$213

$245

$274

$301

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Terminal Value (in '15)

$10,655 COSTS OF EQUITY AND CAPITAL 1

Cost of Equity

2

3

4

5

6

7

8

9

10

9.35%

9.35%

9.35%

9.35%

9.35%

9.69%

10.03%

10.37%

10.71%

11.05%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

After-tax Cost of Debt

5.27%

5.27%

5.27%

5.27%

5.27%

4.22%

3.16%

2.11%

1.05%

0.00%

Proportion of Debt

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

Proportion of Equity

Cost of Capital Cumulative WACC

Present Value

9.35%

9.35%

9.35%

9.35%

9.35%

9.69%

10.03%

10.37%

10.71%

11.05%

109.35%

119.56%

130.74%

142.95%

156.31%

171.45%

188.64%

208.20%

230.50%

255.97%

$82

$82

$87

$92

$97

$106

$113

$118

$119

$4,280

FIRM VALUATION Value of Firm - Value of Debt Value of Equity Value of Equity per Share

$5,175 $$5,175 $129.90

2007 Value of Firm by year $ Value of Debt

$5,175 $-

2008 $5,570 $-

2009 $5,991 $-

2010 $6,438 $-

2011 $6,908 $-

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2012 $7,402 $-

2013 $7,938 $-

2014 $8,520 $-

2015 $9,159 $-

2016 $9,866 $-

EVA Valuation Base EBIT (1-t) - WACC (CI) EVA Terminal EVA PV PV of EVA + Capital Invested + PV of Chg Capital in Yr 10 = Firm Value

1 $87

Cumulated WACC

3 $116 $58 $58

4 $134 $59 $75

$154 $61 $93

$44 $49 $57 $65 $4,777 $603 $(205) This reconciles the assumptions on stable growth, ROC and Capital I

$5,175

WACC ROC Capital Invested Calculation of Capital Invested Initial + Net Cap Ex + Chg in WC Ending

2 $105 $56 $48

9.35% 17.35% $603

$603

$603

$603 $8 $7 $618 109.35%

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9.35% 18.76% $618

$618 $9 $9 $636 119.56%

9.35% 21.07% $636

$636 $9 $11 $656 130.74%

9.35% 23.56% $656

$656 $10 $13 $679 142.95%

EVA Valuation 5

6

7

8

9

10

$178 $63 $114

$209 $68 $141

$241 $74 $167

$272 $79 $193

$300 $84 $216

$73

$82

$89

$93

$94

$324 $90 $234 $10,343 $4,132

owth, ROC and Capital Invested

9.35% 26.19% $679

$679 $11 $15 $706 156.31%

9.69% 29.64% $706

$706 $11 $16 $733 171.45%

10.03% 32.86% $733

$733 $11 $16 $761 188.64%

10.37% 35.71% $761

$761 $11 $16 $788 208.20%

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10.71% 38.07% $788

$788 $11 $15 $813 230.50%

11.05% 39.83% $813

$813 $11 $12 $837 255.97%

EVA Valuation Terminal Year $350 $34 $315

11.05% 112.36% $311 (Adjusted to reflect terminal ROC)

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Sheet4 High Growth Revenue Operating Margin No debt Tax Rate Cost of Capital

Revenue Operating Margin Gross Profit Tax % EBIT(1-t) Depreciation Change in Working Capital Capex FCFF Terminal Value in year 10

Transition Revenue Slow to 15% Operating Margin Increase to 35% No debt Tax rate 38%

20% 30% 38% 9.35%

Base Year Year 1 Year 2 461 553.2 30.00% 30.00% 138.3 165.96 38% 38% 85.75 102.9 9 9.9 $0 7.38 16 17.28 $79 88.14

Present Value Calculations $78.75

78.75

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Year 3 663.84 30.00% 199.15 38% 123.47 10.89 8.85 18.66 106.85

796.61 30.00% 238.98 38% 148.17 11.98 10.62 20.16 129.37

Sheet4

Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 955.93 1147.12 1347.86 1563.52 1790.23 2022.96 30.00% 30.50% 31% 32% 33% 34% 286.78 349.87 417.84 500.33 590.78 687.81 38% 38% 38% 38% 38% 38% 177.8 216.92 259.06 310.2 366.28 426.44 13.18 14.49 15.22 15.98 16.78 17.62 12.75 15.29 16.06 17.25 18.14 18.62 21.77 23.51 25.39 27.42 29.61 31.98 156.47 192.61 232.83 281.51 335.31 393.46

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Sheet4

Year 10 2265.71 35% 793 38% 491.66 18.5 19.42 34.54 393.46 14164.4

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