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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 nave estimate, you can use BV of debt + BV of Equity)
Enter the current depreciation = $ 233
Enter the current capital expenditures for the $ 298
Enter the change in Working Capital in last ye $ 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 th 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 investment 0%

Enter the growth rate in capital expenditures & depreciatio 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 peri 75.00%

Enter capital expenditures as a percent of depreciation in t 200.00% See capital expenditure worksheet (capex.xls) for details.

How much debt do you plan to use in financing investment 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 Expens $ 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 Expenditure $ 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 1 $ (96) This reconciles the assumptions on stable growth, ROC and Capital
= 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

owth, ROC 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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