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INPUTS FOR VALUATION

Current Inputs
Enter the current revenues of the firm = $12,406
Enter current capital invested in the firm = $20,000 { As a na•ve estimate, you can use BV of debt + BV of Equity)
Enter the current depreciation = $233
Enter the current capital expenditures for the firm = $298
Enter the change in Working Capital in last year = $115
Enter the value of current debt outstanding = $-
Enter the number of shares outstanding = 1,500.00

High Growth Period Your Inputs

Enter the growth rate in revenues for the next 5 years = 25.00%
What will all operating expenses be as a % of revenues in the fifth year? 70.00% (Operating expenses include depreciation: This is equal to (1-Pre-tax Operating Margin))
How much debt do you plan to use in financing investments? 0%

Enter the growth rate in capital expenditures & depreciation 25.00%

Enter working capital as a percent of revenues 7.50%
Enter the tax rate that you have on corporate income 36.00%
What beta do you want to use to calculate cost of equity = 1.25

Enter the current long term bond rate = 6.50%

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 = 6.00%

Enter operating expenses as a % of revenues in stable period = 75.00%
Enter capital expenditures as a percent of depreciation in this period 200.00% See capital expenditure worksheet (capex.xls) for details.
How much debt do you plan to use in financing investments? 5.00%

Enter interest rate of debt in stable period = 7.50%

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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 25.00% 25.00% 25.00% 25.00% 25.00% 21.20% 17.40% 13.60% 9.80% 6.00%
Growth in Deprec'n 25.00% 25.00% 25.00% 25.00% 25.00% 21.20% 17.40% 13.60% 9.80% 6.00%
Revenues $12,406 $15,508 $19,384 $24,230 $30,288 $37,860 $45,886 $53,871 $61,197 $67,194 $71,226
Operating Expenses

% of Revenues 70.00% 70.00% 70.00% 70.00% 70.00% 70.00% 71.00% 72.00% 73.00% 74.00% 75.00%
- $ Operating Expenses $8,684 $10,855 $13,569 $16,961 $21,202 $26,502 $32,579 $38,787 $44,674 $49,724 $53,420
EBIT $3,722 $4,652 $5,815 $7,269 $9,086 $11,358 $13,307 $15,084 $16,523 $17,471 $17,807
Tax Rate 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00%

EBIT (1-t) $2,382 $2,977 $3,722 $4,652 $5,815 $7,269 $8,517 $9,654 $10,575 $11,181 $11,396
+ Depreciation $233 $291 $364 $455 $569 $711 $862 $1,012 $1,149 $1,262 $1,338
- Capital Expenditures $298 $373 $466 $582 $728 $909 $1,263 $1,616 $1,969 $2,322 $2,675

- Change in WC $115 $233 $291 $363 $454 $568 $602 $599 $549 $450 $302
= FCFF $2,202 $2,664 $3,329 $4,162 $5,202 $6,503 $7,514 $8,451 $9,206 $9,671 $9,756

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Terminal Value (in '05) $167,813

COSTS OF EQUITY AND CAPITAL
1 2 3 4 5 6 7 8 9 10

Cost of Equity 13.38% 13.38% 13.38% 13.38% 13.38% 13.21% 13.05% 12.88% 12.72% 12.55%
Proportion of Equity 100.00% 100.00% 100.00% 100.00% 100.00% 99.00% 98.00% 97.00% 96.00% 95.00%
After-tax Cost of Debt 5.44% 5.44% 5.44% 5.44% 5.44% 5.31% 5.18% 5.06% 4.93% 4.80%
Proportion of Debt 0.00% 0.00% 0.00% 0.00% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00%

Cost of Capital 13.38% 13.38% 13.38% 13.38% 13.38% 13.13% 12.89% 12.65% 12.40% 12.16%
Cumulative WACC 113.38% 128.54% 145.73% 165.22% 187.32% 211.92% 239.23% 269.48% 302.91% 339.75%

Present Value $2,349 $2,590 $2,856 $3,149 $3,472 $3,546 $3,532 $3,416 $3,193 $52,265

FIRM VALUATION
Value of Firm $80,367
- Value of Debt $-

Value of Equity $80,367

Value of Equity per Share $53.58

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Value of Firm by year $80,367 $88,453 $96,954 $105,760 $114,703 $123,542 $132,250 $140,844 $149,448 $158,314
$ Value of Debt $- $- $- $- $- $1,235 $2,645 $4,225 $5,978 $7,916

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 EVA Valuation

Base 1 2 3 4
EBIT (1-t) $2,382 $2,977 $3,722 $4,652 $5,815
- WACC (CI) $2,675 $2,717 $2,769 $2,835
EVA $302 $1,005 $1,883 $2,980
Terminal EVA
PV $267 $782 $1,292 $1,804
PV of EVA $60,463
+ Capital Invested $20,000
+ PV of Chg Capital in Yr 10 $(96) This reconciles the assumptions on stable growth, ROC and Capital Invested
= Firm Value $80,367

WACC 13.38% 13.38% 13.38% 13.38%

ROC 14.89% 18.32% 22.47% 27.44%
Capital Invested $20,000 $20,314 $20,706 $21,197

Calculation of Capital Invested

Initial $20,000 $20,000 $20,314 $20,706 $21,197
+ Net Cap Ex $81 $102 $127 $159
+ Chg in WC $233 $291 $363 $454
Ending $20,000 $20,314 $20,706 $21,197 $21,810

Cumulated WACC 113.38% 128.54% 145.73% 165.22%

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 EVA Valuation

5 6 7 8 9 10
$7,269 $8,517 $9,654 $10,575 $11,181 $11,396
$2,917 $2,964 $3,039 $3,134 $3,244 $3,364
$4,352 $5,552 $6,615 $7,441 $7,938 $8,032
$138,838
$2,323 $2,620 $2,765 $2,761 $2,620 $43,229

and Capital Invested

13.38% 13.13% 12.89% 12.65% 12.40% 12.16%

33.33% 37.72% 40.94% 42.67% 42.76% 41.20%
$21,810 $22,576 $23,579 $24,782 $26,151 $27,661

$21,810 $22,576 $23,579 $24,782 $26,151 $27,661

$198 $401 $604 $820 $1,060 $1,338
$568 $602 $599 $549 $450 $302
$22,576 $23,579 $24,782 $26,151 $27,661 $29,301

187.32% 211.92% 239.23% 269.48% 302.91% 339.75%

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 EVA Valuation

Terminal Year
$12,080
$3,524
$8,556

12.16%
41.69%
$28,975 (Adjusted to reflect terminal ROC)

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