Paramount valuation -1993

Cash flow forecast

year 0 1 2 3 4 5
year 1993 1994 1995 1996 1997 1998
Sales $ 4,905.00 $ 5,264.30 $ 5,648.60 $ 6,060.00 $ 6,500.70
EBITD $ 660.60 $ 737.00 $ 790.80 $ 848.40 $ 910.10
Depreciation $ (162.00) $ (172.00) $ (184.00) $ (196.00) $ (209.00)
EBIT $ 498.60 $ 565.00 $ 606.80 $ 652.40 $ 701.10
Tax 34% $ (169.52) $ (192.10) $ (206.31) $ (221.82) $ (238.37)
EBIT(1-t) $ 329.08 $ 372.90 $ 400.49 $ 430.58 $ 462.73
Operating Cash Flow (EBITD-Tax) $ 491.08 $ 544.90 $ 584.49 $ 626.58 $ 671.73
Capital expenditures $ (160.10) $ (177.30) $ (176.70) $ (202.90) $ (216.60)
Change WC $ (45.60) $ (62.10) $ (66.50) $ (71.20) $ (76.20)
Asset sale $ 900.00
Net Cash Flow $ 285.38 $ 1,205.50 $ 341.29 $ 352.48 $ 378.93
Discount rate (1+WACC)^t $ 258.70 $ 990.66 $ 254.25 $ 238.04 $ 231.98
PV (1-5) $ 1,973.63

Terminal value
g2 5%
CF6 $ 397.87
TV year5 $ 7,490.76
TV 0 $ 4,585.87
Enterprise Value $ 1,973.63 $ 4,585.87 $ 1,007.10 $ 7,566.61
Equity $ 6,553.61
P0 $ 54.61

WACC Calculation
S 120 55 $ 6,600.00
B $ 1,013.00
S/B+S 0.867
Rf Beta Rm-Rf
5.68% 1 5.50%
Rs 11.18%
Rb 7.05%
t 34.00%
Rb*(1-t) 4.65%
WACC 10.31%

1990 1991 1992 1993 Average

Historical tax rate 32% 37% 31% 34% 34%

Hard synergy calculation 1 2 3 4 5

1994 1995 1996 1997 1998
Estimated synergies: Paramount -Viacom merger 134 150 171 216 223
Discount rate (1+WACC)^t $ 121.47 $ 123.27 $ 127.39 $ 145.87 $ 136.52
PV (1-5) $ 654.52

Terminal value of synergies

g2 5%
Synergies year 6 $ 234.15
TV of synergies year5 $ 4,408.35
PV of TV of synergies $ 2,698.81
PV of all synergies $ 654.52 $ 2,698.81 $ - $ 3,353.34

Synergies per share $ 27.94

Current share price $ 54.61

Total value of paramount shares to Viacom $ 82.56

Paramount valuation -1993
EBITD multiple

EBITD Multiple 1993 Est 1994

Wald Disney 13.3 12.2
Time Warner 11.2 10.4
Turner Broadcasting 14.8 11.9

Median 13.3 11.9

Average 13.1 11.5
Time Warner 11.2 10.4

Parmount EBITD $ 560.50 $ 660.60

Estimated capital (medians) $ 7,454.65 $ 7,861.14
Estimated capital (Average) $ 7,342.55 $ 7,596.90
Time Warner multiple $ 6,277.60 $ 6,870.24

Estimated equity (medians) $ 7,448.75 $ 7,855.24

Estimated equity (Average) $ 7,336.65 $ 7,591.00
Estimated equity (TW) $ 6,271.70 $ 6,864.34

Estimated stock price (medians) $ 62.07 $ 65.46

Estimated stock price (averages) $ 61.14 $ 63.26
Estimated stock price (TW) $ 52.26 $ 57.20
Paramount 1993

Income statement 1993

Revenues 4,641.60
Cost of Goods Sold -3,047.60
SG & A -1,254.60

Operating Income 339.4

Other Income (expense) (6.6)
Interest Expense (94.0)
Interest Income 78.5

Earnings before Taxes 317.3

Provision for Taxes (109.2)

Extraordinary Items (9.1)
Net Earnings 199.0

Depreciation and Amortization 221.1

Working Capital 802.7
Capital Expenditures 111.8
Balance sheet 1993

1993 1993
ASSETS LIABILITIES
Cash 380.6 Current Maturities of LT debt 10.1
Short-term investments 626.50 Trade Accounts Payable 196.5
Trade receivables 1,062.20 Income taxes Payable 64.5
Inventories 633.7 Accrued Expenses and other 1,170.50
Other current assets 538.3
Total Current Liabilities 1,441.60
Total Current Assets 3,241.30 Deferred Liabilities 871.2
Property, Plant, & Equipment 1,572.20 Long-Term debt 1,002.9
Accumulated Depreciation -382.4
Net PP&E 1,189.80 Total Liabilities 3,315.7
Intangibles 1,560.30
Other Assets 1,454.1 EQUITY
Common Stock 119.6
Total Assets 7,455.5 Paid-In Capital 778.1
Retained Earnings 3,252.2
Translation Adjustments (20.1)

Total Net Worth 4,129.8

Total Liabilities and Equity 7,445.5

Price per share 54

Shares outstanding 120
Short term solvancy

Current ratio 2.248

Quick ratio 1.435

Finacial leverage

Debt/Assets 0.136

Debt/book equity 0.245

Debt/Market equity 0.156

Interest coverage (gross) 3.611

Interest coverage (net) 21.897

Profitability

Gross operating margins 0.073

Return on assets, ROA 0.046

Return on equity, ROE 0.048

Activity

Asset turnover 0.623

Receivables turnover 4.370 82 day credit

Inventory turnover 7.325 49 days

Market value

EPS 1.658

Price to earnings P/E 32.563

Market to book 1.569

Bankruptcy prediction
Ratio Coeficient product
X1 0.241 1.2 0.290
X2 0.437 1.4 0.612
X3 0.046 3.3 0.150
X4 6.397 0.6 3.838
X5 0.623 1 0.623
Z score 5.512