Year FCFF Terminal Valu Present Value

1 ($269.28) ($234.36)
2 ($328.88) ($249.11)
3 ($227.44) ($149.93)
4 ($98.99) ($56.80)
5 ($58.02) ($28.97)
6 $134.16 $58.89
7 $255.07 $99.39
8 $286.28 $99.94
9 $533.77 $168.43
10 $792.27 $27,620.01 $8,173.33
$7,880.81
$149.37
Valuing Options or Warrants when there is dilution
Enter the current stock price = 300
Enter the strike price on the option = 18.71
Enter the expiration of the option = 8
Enter the standard deviation in stock price 50.00% (volatility)
Enter the annualized dividend yield on sto 0.00%
Enter the treasury bond rate = 5.00%
Enter the number of warrants (options) ou 6.01
Enter the number of shares outstanding = 52.76

VALUING WARRANTS WHEN THERE IS DILUTION

Stock Price= 300 # Warrants issued= 6.01
Strike Price= 18.71 # Shares outstanding= 53
Adjusted S (DO NOT ENTER 298.606304 T.Bond rate= 5.00%
Adjusted K (DO NOT ENTER 18.71 Variance= 0.2500
Expiration (in years) = 8 Annualized dividend yield= 0.00%
Div. Adj. interest rate= 5.00%

d1 = 2.94868326
N (d1) = 0.99840435

d2 = 1.53446969
N (d2) = 0.93754293

Value of the call =$286.37

Number of Option 6.01
Value of Options ###
 General FCFF Discount Model

A Valuation of Amazon

This model is designed to value a firm, with two stages of growth, an

period of higher growth and a subsequent period of stable growth

Assumptions
1. The firm is expected to grow at a higher growth rate in the first period.
2. The growth rate will drop at the end of the first period to the stable growth rate.
3. The free cashflow to equity is the correct measure of expected cashflows to stockholder

The user has to define the following inputs:

1. Length of high growth period
2. Expected growth rate in earnings during the high growth period.
3. Capital Spending, Depreciation and Working Capital needs during the high growth perio
4. Expected growth rate in earnings during the stable growth period.
5. Inputs for the cost of capital. (Cost of equity, Cost of debt, Weights on debt and equity)

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 General FCFF Discount Model

Inputs to the model

Current EBIT = ($80.00) (in currency)
Current Net Income = ($80.00) (in currency)
Current Dividends = $0.00 ( in currency)
Current Interest Expense = $0.00 (in currency)
Current Capital Spending $30.00 (in currency)
Current Depreciation = $15.00 (in currency)
Tax Rate on Income = 36.00% (in percent)
Current Revenues = $667.00 ( in currency)
Current Working Capital = $2.00 (in currency)
Chg. Working Capital = $0.00 (in currency)
Book Value of Debt = $0.00 ( in currency)
Book Value of Equity = $10.00 (in currency)

Weights on Debt and Equity

Is the firm publicly traded ? Yes ( Yes or No)

If yes, enter the market price per share = $325.00 (in currency)
& Number of shares outstanding = 52.76 (in #)
& Market Value of Debt = $0.00 ( in currency)

If no, do you want to use the book value debt ratio ? (Yes or No)
If no, enter the debt to capital ratio to be used = (in percent)

Enter length of extraordinary growth pe 10 (in years)

Costs of Components
Do you want to enter cost of equity direc No (Yes or No)
If yes, enter the cost of equity = (in percent)
If no, enter the inputs to the cost of equity
Beta of the stock = 1.8

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 General FCFF Discount Model

Riskfree rate= 5.00% (in percent)

Risk Premium= 5.50% (in percent)

Enter the cost of debt for cost of capital 8.00% ( in percent)

Earnings Inputs
Please enter year-specific inputs for each of the following variables:
Year Growth Rate inCOGS as % ofGrowth Rate in
Growth Rate Working
in Capital
Revenue Revenue Capital Spending
Depreciation
as % of Revenue
1 150.00% 110% 75% 100% 5.00%
2 100.00% 105% 50% 75% 5.00%
3 75.00% 100% 30% 50% 5.00%
4 50.00% 98% 25% 30% 5.00%
5 30.00% 98% 20% 25% 5.00%
6 25.20% 96.80% 16% 20% 5.00%
7 20.40% 95.60% 11% 16% 5.00%
8 15.60% 94.40% 6% 11% 5.00%
9 10.80% 93.20% 6% 6% 5.00%
10 6.00% 92% 6% 6% 5.00%
Compounded Av 42%
Enter growth rate in stable growth perio 6.00% (in percent)
Enter COGS as % of Revenue in stable p 92.00% (in percent)
Enter Working Capital as % of Revenue i 5.00% (in percent)

Will the beta change in the stable perio Yes (Yes or No)
If yes, enter the beta for stable period = 1

Do you want to change the debt ratio in the stable gr Yes (Yes or No)
If yes, enter the debt ratio for the stable growth peri 15% (in percent)

Will the cost of debt change in the stabl Yes (Yes or No)
If yes, enter the new cost of debt = 8.00% ( in percent)

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 General FCFF Discount Model

Capital Spending and Depreciation in Stable growth period

Is capital spending to be offset by depreciation in sta No (Yes or No)
If no, enter capital expenditures as % of depreciation 110% (in percent: > 100%)

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 General FCFF Discount Model

Before reviewing the output, check to see if any warnings appear on the next page.
Warnings
You have entered a negative current EPS. This model will not work

Capital Spending exceeds depreciation by a significant factor

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 General FCFF Discount Model

Output from the program

Cost of Equity = 14.90%
Equity/(Debt+Equity ) = 100.00%
After-tax Cost of debt = 5.12%
Debt/(Debt +Equity) = 0.00%
Cost of Capital = 14.90%

1 2 3 4 5
Revenues $1,667.50 $3,335.00 $5,836.25 $8,754.38 $11,380.69
- COGS $1,834.25 $3,501.75 $5,836.25 $8,579.29 $11,153.07
- Depreciatio $30.00 $52.50 $78.75 $102.38 $128.17
EBIT ($196.75) ($219.25) ($78.75) $72.71 $99.44
- EBIT*t $0.00 $0.00 $0.00 $0.00 $0.00
EBIT (1-t) ($196.75) ($219.25) ($78.75) $72.71 $99.44
+ Depreciati $30.00 $52.50 $78.75 $102.38 $128.17
- Capital Sp $52.50 $78.75 $102.38 $128.17 $154.32
- Chg. Work $50.03 $83.38 $125.06 $145.91 $131.32
Free CF to Fi ($269.28) ($328.88) ($227.44) ($98.99) ($58.02)
Present Value ($234.36) ($249.11) ($149.93) ($56.80) ($28.97)
NOL $316.75 $536.00 $614.75 $542.04 $442.60
Index 0 0 0 0 0

Cost of Capital Computation

Beta 1.80 1.80 1.80 1.80 1.80
Cost of Equit 14.90% 14.90% 14.90% 14.90% 14.90%
Cost of Debt 5.12% 5.12% 5.12% 5.12% 5.12%
Debt Ratio 0.00% 0.00% 0.00% 0.00% 0.00%
Cost of Capita 14.90% 14.90% 14.90% 14.90% 14.90%
Cum. WACC 1.14900 1.32020 1.51691 1.74293 2.00263

Growth Rate in Stable Phase = 6.00%

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 General FCFF Discount Model

FCFF in Stable Phase = $1,020.01

Cost of Equity in Stable Phase = 10.50%
Equity/ (Equity + Debt) = 85.00%
AT Cost of Debt in Stable Phase = 5.12%
Debt/ (Equity + Debt) = 15.00%
Cost of Capital in Stable Phase = 9.69%
Value at the end of growth phase = $27,620.01

Present Value of FCFF in high growth phase = ($64.61)

Present Value of Terminal Value of Firm = $7,945.42
Value of the firm = $7,880.81
Market Value of Debt = $0.00
Market Value of Equity = $7,880.81
Value of Options Outstanding (See option work $1,721.09
Value of Equity in Common Stock = $6,159.72
Value of Equity per Share = $116.75

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 General FCFF Discount Model

es of growth, an initial
of stable growth.

growth rate.
flows to stockholders.

e high growth period.

n debt and equity)

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 General FCFF Discount Model

currency)

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 General FCFF Discount Model

ng Capital
of Revenue
Cap Ex lags revenue growth by 2 years

Depreciation lags cap ex by 1 year

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 General FCFF Discount Model

ent: > 100%)

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 General FCFF Discount Model

e next page.

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 General FCFF Discount Model

6 7 8 9 10 Terminal Year
$14,248.62 ### ### ### ### $24,689.29
$13,792.66 ### ### ### ### $22,714.15
$154.32 $178.39 $197.66 $209.52 $222.09 $235.42
$301.63 $576.44 $674.93 $1,020.99 $1,361.75 $1,739.73
$0.00 $156.77 $242.97 $367.56 $490.23 $626.30
$301.63 $419.67 $431.95 $653.43 $871.52 $1,113.42
$154.32 $178.39 $197.66 $209.52 $222.09 $235.42
$178.39 $197.66 $209.52 $222.09 $235.42 $258.96
$143.40 $145.34 $133.81 $107.09 $65.92 $69.88
$134.16 $255.07 $286.28 $533.77 $792.27 $1,020.01
$58.89 $99.39 $99.94 $168.43 $227.91
$140.96 $0.00 $0.00 $0.00 $0.00
0 0 0 0 1

1.64 1.48 1.32 1.16 1.00 1.00

14.02% 13.14% 12.26% 11.38% 10.50% 10.50%
5.12% 5.12% 5.12% 5.12% 5.12% 5.12%
3.00% 6.00% 9.00% 12.00% 15.00% 15.00%
13.75% 12.66% 11.62% 10.63% 9.69% 9.69%
2.27805 2.56642 2.86457 3.16904 3.47622

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 General FCFF Discount Model

minal Year

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