Microsoft Vs Intuit Valuation
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Exhibit A - Kohler Co. Stock valuation ($ in thousands) Fiscal Year Ended Revenues Direct Operating Exp SG&A
EBITDA Depreciation & Amort. EBIT
Taxes (~35%) Debt Free Earnings Plus: Depreciation & Amort. Less: CAPEX (Increase) in Working Capital
Unlevered Free Cash Flow
Discount Factor Discount Factor Discount Factor
-0.06 FY1992 2,759,000 (1,296,000) (90,000) 1,373,000 (112,000) 1,261,000 (333,000) 928,000
Actual FY1993 3,753,000 (1,794,000) (119,000) 1,840,000 (151,000) 1,689,000 (448,000) 1,241,000
FY1994 4,649,000 (2,160,000) (166,000) 2,323,000 (237,000) 2,086,000 (576,000) 1,510,000
FY1995E 5,811,250 (2,673,175) (230,740) 2,907,335 (372,090) 2,535,245 (684,516) 1,850,729
112,000 (317,000) 0 723,000
151,000 (236,000) 0 1,156,000
237,000 (278,000) 0 1,469,000
372,090 (348,675) 0 1,874,144
584,181 (435,844) 0 2,351,247
917,165 (544,805) 0 2,956,753
1,439,948 (681,006) 0 3,729,623
1,751,536 1,735,318 1,719,398
2,053,670 2,015,815 1,978,997
2,413,591 2,347,166 2,283,156
2,845,311 2,741,384 2,642,159
7% 8% 9%
Projected FY1996E FY1997E 7,264,063 9,080,078 (3,341,469) (4,176,836) (320,729) (445,813) 3,601,865 4,457,429 (584,181) (917,165) 3,017,684 3,540,265 (814,775) (955,871) 2,202,909 2,584,393
FY1998E 11,350,098 (5,221,045) (619,680) 5,509,373 (1,439,948) 4,069,425 (1,098,745) 2,970,680
PV of FCF 9,064,109 8,839,683 8,623,710
Exhibit B - Industry Beta Comparison Company
Ticker Debt to Equity Tax Rate Levered Beta Unlevered Beta None 0.2 35% 1.07 1.37 ASD 0.87 40% 0.82 0.73 AMWD 0.16 40% 0.76 1.09 MAS 0.2 40% 1.28 1.78 BGG 0.21 40% 0.66 0.91 CUM 0.61 40% 1.09 1.13 DDC 0.21 40% 1.30 1.79 Industry Average 0.99 1.26 Relever Industry Average for Kohler 0.2 40% Err:522 Err:522
msft American Standard American Woodmark masco Briggs & Stratton Cummins Diesel Detroit Diesel
Bl = Bu x [1 + (1 – tax rate) x (D / E)], or Bu = Bl / [1 + (1 – tax rate) x (D / E)]
Exhibit C - MSFT. - Cost of Capital Cost of Equity (Ke) Risk Free Rate (Rf) 10yr Treasury 04/1998 Mkt Risk Premium Size Premium Beta Ke =5.64% + 1.07(8.5% +1%)
5.64 8.5 1 1.07 Ke =
Cost of Debt (Kd) Estimated All-In Cost for Company Effective Tax Rate Kd = 6.5% * (1-40%)
8.50% 35% Kd=
Cost of Preferred (Kp) Balance Sheet does not show any Preferred Stock Kp= Equity: $54*581M shares Debt: Total Value: WACC = WACC =
15.81%
6%
0% 29,994,000,000 913,000,000 30,907,000,000 Kd (1-T)(D/V) + Ke(E/V) 15.4%
97% 3%
Exhibit D - DCF Analysis: Using Perpetuity Growth Rate for Terminal Value (in $ thousands) Discount Rate Perpetuity Growth Rate 2001E Unlevered FCF Terminal Value
2% 3,729,623 47,552,687
10% 3% 3,729,623 54,878,731
4% 3,729,623 64,646,790
2% 3,729,623 42,269,055
11% 3% 3,729,623 48,018,890
4% 3,729,623 55,411,535
2% 3,729,623 38,042,150
12% 3% 3,729,623 42,683,458
4% 3,729,623 48,485,093
PV of Terminal Value PV of Free Cash Flow (Add Back)Cash and Cash Equivalents Implied Value of Enterprise
32,479,125 9,064,109 70,978 41,614,212
37,482,912 9,064,109 70,978 46,617,999
44,154,628 9,064,109 70,978 53,289,715
27,843,936 8,839,683 70,978 36,754,597
31,631,530 8,839,683 70,978 40,542,192
36,501,294 8,839,683 70,978 45,411,956
24,176,474 8,623,710 70,978 32,871,162
27,126,109 8,623,710 70,978 35,820,797
30,813,153 8,623,710 70,978 39,507,841
Average Value
41,381
DCF Analysis: Using EBITDA Multiple for Terminal Value (in $ thousands) Discount Rate EBITDA Multiple 2001E EBITDA Terminal Value
5 5,509,373 27,546,865
10% 8 5,509,373 44,074,984
12 5,509,373 66,112,476
5 5,509,373 27,546,865
11% 8 5,509,373 44,074,984
12 5,509,373 66,112,476
5 1,405,350 7,026,749
12% 8 1,405,350 11,242,799
12 1,405,350 16,864,198
PV of Terminal Value PV of Free Cash Flow (Add Back)Cash and Cash Equivalents Implied Value of Enterprise
18,814,879 9,064,109 70,978 27,949,966
30,103,807 9,064,109 70,978 39,238,894
45,155,711 9,064,109 70,978 54,290,798
18,145,973 8,839,683 70,978 27,056,635
29,033,557 8,839,683 70,978 37,944,219
43,550,336 8,839,683 70,978 52,460,997
4,465,626 8,623,710 70,978 13,160,314
7,145,002 8,623,710 70,978 15,839,690
10,717,503 8,623,710 70,978 19,412,191
Average Value
31,928
DCF Analysis: Using Sales Multiple for Terminal Value (in $ thousands) Discount Rate Sales Multiple 2001E Sales Terminal Value
1 11,350,098 11,350,098
10% 2 11,350,098 22,700,195
3 11,350,098 34,050,293
1 11,350,098 11,350,098
11% 2 11,350,098 22,700,195
3 11,350,098 34,050,293
1 11,350,098 11,350,098
12% 2 11,350,098 22,700,195
3 11,350,098 34,050,293
PV of Terminal Value PV of Free Cash Flow (Add Back)Cash and Cash Equivalents Implied Value of Enterprise
7,752,269 9,064,109 70,978 16,887,356
15,504,539 9,064,109 70,978 24,639,626
23,256,808 9,064,109 70,978 32,391,895
7,476,661 8,839,683 70,978 16,387,322
14,953,322 8,839,683 70,978 23,863,983
22,429,983 8,839,683 70,978 31,340,644
7,213,192 8,623,710 70,978 15,907,880
14,426,385 8,623,710 70,978 23,121,073
21,639,577 8,623,710 70,978 30,334,265
Average Value
23,875
EBITDA Depreciation & Amort. EBIT
Taxes (~35%) Debt Free Earnings Plus: Depreciation & Amort. Less: CAPEX (Increase) in Working Capital
Unlevered Free Cash Flow
Discount Factor Discount Factor Discount Factor
-0.06 FY1992 2,759,000 (1,296,000) (90,000) 1,373,000 (112,000) 1,261,000 (333,000) 928,000
Actual FY1993 3,753,000 (1,794,000) (119,000) 1,840,000 (151,000) 1,689,000 (448,000) 1,241,000
FY1994 4,649,000 (2,160,000) (166,000) 2,323,000 (237,000) 2,086,000 (576,000) 1,510,000
FY1995E 5,811,250 (2,673,175) (230,740) 2,907,335 (372,090) 2,535,245 (684,516) 1,850,729
112,000 (317,000) 0 723,000
151,000 (236,000) 0 1,156,000
237,000 (278,000) 0 1,469,000
372,090 (348,675) 0 1,874,144
584,181 (435,844) 0 2,351,247
917,165 (544,805) 0 2,956,753
1,439,948 (681,006) 0 3,729,623
1,751,536 1,735,318 1,719,398
2,053,670 2,015,815 1,978,997
2,413,591 2,347,166 2,283,156
2,845,311 2,741,384 2,642,159
7% 8% 9%
Projected FY1996E FY1997E 7,264,063 9,080,078 (3,341,469) (4,176,836) (320,729) (445,813) 3,601,865 4,457,429 (584,181) (917,165) 3,017,684 3,540,265 (814,775) (955,871) 2,202,909 2,584,393
FY1998E 11,350,098 (5,221,045) (619,680) 5,509,373 (1,439,948) 4,069,425 (1,098,745) 2,970,680
PV of FCF 9,064,109 8,839,683 8,623,710
Exhibit B - Industry Beta Comparison Company
Ticker Debt to Equity Tax Rate Levered Beta Unlevered Beta None 0.2 35% 1.07 1.37 ASD 0.87 40% 0.82 0.73 AMWD 0.16 40% 0.76 1.09 MAS 0.2 40% 1.28 1.78 BGG 0.21 40% 0.66 0.91 CUM 0.61 40% 1.09 1.13 DDC 0.21 40% 1.30 1.79 Industry Average 0.99 1.26 Relever Industry Average for Kohler 0.2 40% Err:522 Err:522
msft American Standard American Woodmark masco Briggs & Stratton Cummins Diesel Detroit Diesel
Bl = Bu x [1 + (1 – tax rate) x (D / E)], or Bu = Bl / [1 + (1 – tax rate) x (D / E)]
Exhibit C - MSFT. - Cost of Capital Cost of Equity (Ke) Risk Free Rate (Rf) 10yr Treasury 04/1998 Mkt Risk Premium Size Premium Beta Ke =5.64% + 1.07(8.5% +1%)
5.64 8.5 1 1.07 Ke =
Cost of Debt (Kd) Estimated All-In Cost for Company Effective Tax Rate Kd = 6.5% * (1-40%)
8.50% 35% Kd=
Cost of Preferred (Kp) Balance Sheet does not show any Preferred Stock Kp= Equity: $54*581M shares Debt: Total Value: WACC = WACC =
15.81%
6%
0% 29,994,000,000 913,000,000 30,907,000,000 Kd (1-T)(D/V) + Ke(E/V) 15.4%
97% 3%
Exhibit D - DCF Analysis: Using Perpetuity Growth Rate for Terminal Value (in $ thousands) Discount Rate Perpetuity Growth Rate 2001E Unlevered FCF Terminal Value
2% 3,729,623 47,552,687
10% 3% 3,729,623 54,878,731
4% 3,729,623 64,646,790
2% 3,729,623 42,269,055
11% 3% 3,729,623 48,018,890
4% 3,729,623 55,411,535
2% 3,729,623 38,042,150
12% 3% 3,729,623 42,683,458
4% 3,729,623 48,485,093
PV of Terminal Value PV of Free Cash Flow (Add Back)Cash and Cash Equivalents Implied Value of Enterprise
32,479,125 9,064,109 70,978 41,614,212
37,482,912 9,064,109 70,978 46,617,999
44,154,628 9,064,109 70,978 53,289,715
27,843,936 8,839,683 70,978 36,754,597
31,631,530 8,839,683 70,978 40,542,192
36,501,294 8,839,683 70,978 45,411,956
24,176,474 8,623,710 70,978 32,871,162
27,126,109 8,623,710 70,978 35,820,797
30,813,153 8,623,710 70,978 39,507,841
Average Value
41,381
DCF Analysis: Using EBITDA Multiple for Terminal Value (in $ thousands) Discount Rate EBITDA Multiple 2001E EBITDA Terminal Value
5 5,509,373 27,546,865
10% 8 5,509,373 44,074,984
12 5,509,373 66,112,476
5 5,509,373 27,546,865
11% 8 5,509,373 44,074,984
12 5,509,373 66,112,476
5 1,405,350 7,026,749
12% 8 1,405,350 11,242,799
12 1,405,350 16,864,198
PV of Terminal Value PV of Free Cash Flow (Add Back)Cash and Cash Equivalents Implied Value of Enterprise
18,814,879 9,064,109 70,978 27,949,966
30,103,807 9,064,109 70,978 39,238,894
45,155,711 9,064,109 70,978 54,290,798
18,145,973 8,839,683 70,978 27,056,635
29,033,557 8,839,683 70,978 37,944,219
43,550,336 8,839,683 70,978 52,460,997
4,465,626 8,623,710 70,978 13,160,314
7,145,002 8,623,710 70,978 15,839,690
10,717,503 8,623,710 70,978 19,412,191
Average Value
31,928
DCF Analysis: Using Sales Multiple for Terminal Value (in $ thousands) Discount Rate Sales Multiple 2001E Sales Terminal Value
1 11,350,098 11,350,098
10% 2 11,350,098 22,700,195
3 11,350,098 34,050,293
1 11,350,098 11,350,098
11% 2 11,350,098 22,700,195
3 11,350,098 34,050,293
1 11,350,098 11,350,098
12% 2 11,350,098 22,700,195
3 11,350,098 34,050,293
PV of Terminal Value PV of Free Cash Flow (Add Back)Cash and Cash Equivalents Implied Value of Enterprise
7,752,269 9,064,109 70,978 16,887,356
15,504,539 9,064,109 70,978 24,639,626
23,256,808 9,064,109 70,978 32,391,895
7,476,661 8,839,683 70,978 16,387,322
14,953,322 8,839,683 70,978 23,863,983
22,429,983 8,839,683 70,978 31,340,644
7,213,192 8,623,710 70,978 15,907,880
14,426,385 8,623,710 70,978 23,121,073
21,639,577 8,623,710 70,978 30,334,265
Average Value
23,875
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