A B C D E F G

1 Discount rate 15% a) Use NPV function to compute the net present value for the p
2 b) Use Data Table to compute the net present value of the pro
3 Year Cash flow of 0%, 4%, 8%,…, 48%. Graph the results and estimate the p
4 0 -600 of return.
5 1 100 c) Use the IRR function to compute the internal rate of return o
6 2 200
7 3 300
8 4 400
9 5 500
10
11
12
13 Consider a project called Stanger Sanitary Landfill, which has the cash flows to the left.
14 Graph NPV profile of the project, then use it to find the IRR(s) of the project. If the coast
of capital is 10%, should you accept the project and why? (show your work)
15
16 STRANGER SANITARY LANDFILL INC.
17 Discount rate 10%
18
19 Year Cash flow
20 0 -800,000
21 1 450,000
22 2 450,000
23 3 450,000
24 4 450,000
25 5 450,000
26 6 -1,500,000
 H I J K
ompute the net 1present value for the project to the left.
2
mpute the net present value of the project for discount rate
3 and estimate the project's internal rate
Graph the results
4
o compute the internal
5 rate of return of the project.
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
 A B C D E F
1 SAVING FOR THE FUTURE Use FV table in the following exercises,
2 Annual deposit to savings 200 a) What is the value at the end of 10 ye
3 Number of years for deposit 10 of each of the next 9 years at an annua
4 Interest rate 3% b) What is the value at the end of 10 ye
5 of years 1-10 at an annual rate of intere
6 a) What is the value at the end of 10 years of $200 deposited today and at the b c) What is the FV in part b) if the annua
7 of each of the next 9 years at an annual rate of interest of 3%? d) What is the FV in part b) if the annua
8 beg of year e) What is the FV in part c) if the depos
9
10 Year Payment Value at end of 10 years f) What is the FV in part d) if the deposi
11 0 200 268.78
12 1 200 260.95
13 2 200 253.35
14 3 200 245.97
15 4 200 238.81
16 5 200 231.85
17 6 200 225.10
18 7 200 218.55
19 8 200 212.18
20 9 200 206.00
21 10 0 0.00
22
23 FV 2,361.56
24 $2,361.56
25
26
27 b) What is the value at the end of 10 years of $200 deposited at the end of years 1-10 at an annual rate of interest of 3%
28 of years 1-10 at an annual rate of interest of 3%?
29 end of year
30 Year payment
31 0 0 0
32 1 200 260.95463677
33 2 200 253.35401628
34 3 200 245.97477308
35 4 200 238.81045931
36 5 200 231.85481486
37 6 200 225.101762
38 7 200 218.5454
39 8 200 212.18
40 9 200 206
41 10 200 200
42
43 FV 2292.7758623
44 FV $2,292.78
45
46 c) What is the FV in part b) if the annual rate of interest is 3%, but interest is compounded monthly?
47
48 interest 3%
 A B C D E F
49 EAR 0.030415957
50
51 Year payment
52 0 0 0
53 1 200 261.90462951
54 2 200 254.1736934
55 3 200 246.67096011
56 4 200 239.38969351
57 5 200 232.32335631
58 6 200 225.46560421
59 7 200 218.81028015
60 8 200 212.35140885
61 9 200 206.08319138
62 10 200 200
63
64 FV 2297.1728174
65 fv $2,297.17
66
67 d) What is the FV in part b) if the annual rate of interest is 3%, but interest is compounded quarterly?
68 ear 0.030339191
69
70 Year payment
71 0 0 0
72 1 200 261.72907418
73 2 200 254.02224486
74 3 200 246.54234951
75 4 200 239.28270588
76 5 200 232.23682846
77 6 200 225.39842274
78 7 200 218.76137953
79 8 200 212.31976956
80 9 200 206.06783813
81 10 200 200
82
83 FV 2296.3606129
84 FV $2,296.36
85
86 e) What is the FV in part c) if the deposits occur in the middle of each year?
87
88
89 Year payment
90 0 0 0
91 1 200 265.85783451
92 2 200 258.01020717
93 3 200 250.39422714
94 4 200 243.00305664
95 5 200 235.83005971
96 6 200 228.86879626
 A B C D E F
97 7 200 222.11301633
98 8 200 215.55665441
99 9 200 209.19382407
100 10 200 203.01881262
101
102 fv 2331.8464889
103 fv 2331.8464889
104
105 f) What is the FV in part d) if the deposits occur at the end of the first quarter of each year?
106
107 Year payment
108 0 0 0
109 1 200 267.66225555
110 2 200 259.78071879
111 3 200 252.13126041
112 4 200 244.70704666
113 5 200 237.50144504
114 6 200 230.50801832
115 7 200 223.72051885
116 8 200 217.13288291
117 9 200 210.73922537
118 10 200 204.53383438
119
120 FV 2348.4172063
121 FV 2348.4172063
 G H I J K L M N O

e FV table in the1 following exercises, then use FV() function to veruify your answer:
What is the value2 at the end of 10 years of $200 deposited today and at the beginning
each of the next39 years at an annual rate of interest of 3%?
What is the value4 at the end of 10 years of $200 deposited at the end of years 1-10 at an annual rate of interest of 3%?
years 1-10 at an5 annual rate of interest of 3%?
What is the FV in6 part b) if the annual rate of interest is 3%, but interest is compounded monthly?
What is the FV 7 in part b) if the annual rate of interest is 3%, but interest is compounded quarterly?
What is the FV 8 in part c) if the deposits occur in the middle of each year?
9
What is the FV 10
in part d) if the deposits occur at the end of the first quarter of each year?
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
10 at an annual27rate of interest of 3%?
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
 P
1
2
3
e of interest of 3%?
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
 SAVING FOR MOM'S RETIREMENT
better late than never! Your mom is 50 and wants to put away some $ for retire
Monthly deposit to savings monthly deposits in the bank, starting today and at the b
Number of months and the month before her retirement at age 70.
Monthly interest rate a) of the interest rate is 6% per year (.5% per month), h
in order to have $200,000 on the day she retires?
b) Use Data Table to repeat the above calculation for an
wants to put away some $ for retirement. She would like to make
e bank, starting today and at the beginning of every month between now
her retirement at age 70.
s 6% per year (.5% per month), how much should she save each month
000 on the day she retires?
epeat the above calculation for annual rate of 0%, 1%, …, 12%.
Mortgage principal You have taken a $60,000, 30-year mortgage to finance the purchase of you
Annual interest rate mortgage has annual rate of 10% and requires monthly flat payments of inte
Payment term (years) PMT function to compute the monthly payment and design a loan table show
Monthly payment paid off.
to finance the purchase of your new house. The
s monthly flat payments of interest and principal. Use
t and design a loan table showing how the loan is
Loan principal
Monthly repayment You are financing Joe's new $20,000 car. Joe promised to pay you $500 per mon
Number of months years. Use RATE function to compute the monthly interest rate he is offering. Co
Monthly interest rate answer by using IRR function. What is the annual interest rate?

Annual interest rate

d to pay you $500 per month for the next 4
est rate he is offering. Confirm your
est rate?
Loan amount 12,000
Interest rate 6% You are taking $12,000 loan at 6%. If you plan to pay
Annual payment will it take to pay off the loan? Build a loan table to con
How long to pay off the loan?
 loan at 6%. If you plan to pay $2,000 a year, how long
e loan? Build a loan table to confirm your answer.
 A B C D
1 Continuously compounded discount rate 15%
2

3 Present
Year Cash flow value
4 1 15,000 12,910.62
5 2 22,000 16,298.00
6 3 14,750 9,405.02
7 4 3,222 1,768.27
8 5 6,333 2,991.50
9 6 18,000 7,318.25
10 7 280,000 97,982.57
11
12 Present value 148,674.23
13
14
15 Continuously compounded discount rate 15%
16 Date today 1-Jan-06

17 Time (years) Present

Date Cash flow from today value
18 31-Jan-06 15,000 0.08219 14,816.20
19 31-Jan-07 22,000 1.08219 18,703.56
20 17-Jul-07 14,750 1.53973 11,708.14
21 31-Dec-07 3,222 1.99726 2,387.90
22 14-Mar-08 6,333 2.20000 4,552.94
23 11-Nov-08 18,000 2.86301 11,715.58
24 13-Mar-09 280,000 3.19726 173,330.57
25
26 Present value 237,214.89
27
28 Hint: use 365-day per year convention
 E F G H I J K L
1
Compute the continuously compounded present value of the following set
2
of cash flows, using a discount rate of 15%.
3

4
5
6
7
8
9
10
11
12
13
14
15
16

17

18
19
20
21
22
23
24
25
26
27
28
 A B C D E F G
1
2 Savings amount $ 10,000.00 You plan to put $10,000 in a saving plan for 2 years. How much will you
3 have at the end of 2 years with each of the following options?
4 Option A
a) Receive 12% stated (nominal) annual interest rate, compounded
5 Interest rate 12.0% monthly.
6 Compounded interest rate 12.68% b) Receive 12.5% stated (nominal) annual interest rate, compounded
7 Savings after 2 years 12697.35 annually.
8 c) Receive 11.5% stated (nominal) annual interest rate, compounded daily.
d) Receive 10% stated annual interest rate in the first year and 15% stated
9 Option B interest rate in the second year, compounded semiannually.
10 Interest rate 12.5%
11 Compounded interest rate 12.50%
12 Savings after 2 years 12656.25
13
14 Option C
15 Interest rate 11.5%
16 Compounded interest rate 12.19%
17 Savings after 2 years 12585.54
18
19 Option D
20 Interest rate first year 10.0%
21 Interest rate second year 15.0%
22 Compounded interest rate 27.41%
23 Savings after 2 years 12740.77
 H I J
1
ng plan for 2 years.
2 How much will you
ach of the following
3 options?
4
annual interest rate, compounded
5
6 rate, compounded
l) annual interest
7
) annual interest8 rate, compounded daily.
erest rate in the first year and 15% stated
9
ompounded semiannually.
10
11
12
13
14
15
16
17
18
19
20
21
22
23
 You plan to put $1,000 in a saving plan per MONTH (end of month) for 2 years. Compute the present
Savings amount $ 1,000.00 value (PV) of the plan with each of the following options?
# of Payments 24
end a) Receive 12% stated (nominal) annual interest rate, interst is compounded monthly.
Option A b) Receive 12.5% stated (nominal) annual interest rate, interest is compounded annually.
c) Receive 11.5% stated (nominal) annual interest rate, interest is compounded daily.
rate 12.0% d) Receive 12% nominal anuual interest rate, interest is compounded quarterly.
APR 1.00% e) Receive 12.5% nominal interest rate, interest is compounded continuously.
PV $21,243.39

Option B
rate 12.5%
monthly 0.986%
PV $21,277.93

Option C
rate 11.5%
ear 12.19%
monthly 0.96%
PV $21,337.79

Option D
rate 12.0%
ear 12.6%
monthly 0.99%
PV 21268.28

Option E
rate 12.50%
continuously 13.314845306682600%
monthly 0.010471109010598
pv $21,124.72
or 2 years. Compute the present

pounded monthly.
ompounded annually.
mpounded daily.
d quarterly.
inuously.
 Simple DCF VALUATION
Free cash flow (FCF)
year ending 31 Dec. 2018 1,000,000
Growth rate of FCF, years 1-5 10.00% <-- Optimistic about short-term growth
Long-term FCF growth rate 5.00% <-- More pessimistic about long-term growth
Weighted average cost of capital, WACC 12.00%
Initial cash and marketable securities 50,000
Financial liabilities 90,000
Number of shares outstanding 1,000,000

Year
FCF
Terminal value
Total

Enterprise value (October 31, 2019)

Add back initial cash and marketable securities
Subtract out 2018 financial liabilities
Equity value
Per share (1 million shares outstanding)

Data table: Share value vs LT growth and WACC

 short-term growth
c about long-term growth
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.66786957
R Square 0.44604976
Adjusted R S 0.43649889
Standard Erro0.02361301
Observations 60

ANOVA
df SS MS F Significance F
Regression 1 0.02604014 0.02604014 46.702545 5.5685E-09
Residual 58 0.03233931 0.00055757
Total 59 0.05837945

CoefficientsStandard Error t Stat P-value Lower 95% Upper 95% Lower 95.0%
Intercept 0.00549975 0.00308018 1.78552751 0.07940432 -0.0006659 0.0116654 -0.0006659
X Variable 1 0.24156023 0.03534721 6.83392603 5.5685E-09 0.1708051 0.31231536 0.1708051
Upper 95.0%
0.0116654
0.31231536
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.66962366
R Square 0.44839585
Adjusted R S 0.43871858
Standard Erro 0.0656287
Observations 59

ANOVA
df SS MS F Significance F
Regression 1 0.19957055 0.19957055 46.3349732 6.6682E-09
Residual 57 0.24550617 0.00430713
Total 58 0.44507672

CoefficientsStandard Error t Stat P-value Lower 95% Upper 95% Lower 95.0%
Intercept -0.00395774 0.00885607 -0.44689562 0.6566439 -0.0216917 0.01377623 -0.0216917
X Variable 1 1.84913439 0.27165269 6.80697974 6.6682E-09 1.30515925 2.39310952 1.30515925
Upper 95.0%
0.01377623
2.39310952
CISCO (CSCO) AND S&P
500 PRICES Returns
July 2002 - June 2007
Date S&P 500 CSCO S&P 500 CSCO
3-Jul-02 911.62 13.19 1. Calculate return series for CSCO and
1-Aug-02 916.07 13.82 0.0049 0.0467 2. Run regression of CSCO return on S&
3-Sep-02 815.28 10.48 -0.1166 -0.2766 3. Interpret the parameter Beta, t-statist
1-Oct-02 885.76 11.18 0.0829 0.0647 4. Conduct fit line plots.
1-Nov-02 936.31 14.92 0.0555 0.2886
2-Dec-02 879.82 13.10 -0.0622 -0.1301
2-Jan-03 855.70 13.37 -0.0278 0.0204 Beta estimation of CSCO
3-Feb-03 841.15 13.98 -0.0171 0.0446 Alpha
3-Mar-03 848.18 12.98 0.0083 -0.0742 Coefficient -0.003242
1-Apr-03 916.92 15.00 0.0779 0.1446 t-statistics
1-May-03 963.59 16.41 0.0496 0.0898
2-Jun-03 974.50 16.79 0.0113 0.0229
1-Jul-03 990.31 19.49 0.0161 0.1491
1-Aug-03 1008.01 19.14 0.0177 -0.0181
2-Sep-03 995.97 19.59 -0.0120 0.0232
1-Oct-03 1050.71 20.93 0.0535 0.0662
3-Nov-03 1058.20 22.70 0.0071 0.0812
1-Dec-03 1111.92 24.23 0.0495 0.0652
2-Jan-04 1131.13 25.71 0.0171 0.0593
2-Feb-04 1144.94 23.16 0.0121 -0.1045
1-Mar-04 1126.21 23.57 -0.0165 0.0175
1-Apr-04 1107.30 20.91 -0.0169 -0.1197
3-May-04 1120.68 22.37 0.0120 0.0675
1-Jun-04 1140.84 23.70 0.0178 0.0578
1-Jul-04 1101.72 20.92 -0.0349 -0.1248
2-Aug-04 1104.24 18.76 0.0023 -0.1090
1-Sep-04 1114.58 18.10 0.0093 -0.0358
1-Oct-04 1130.20 19.21 0.0139 0.0595
1-Nov-04 1173.82 18.75 0.0379 -0.0242
1-Dec-04 1211.92 19.32 0.0319 0.0299
3-Jan-05 1181.27 18.04 -0.0256 -0.0685
1-Feb-05 1203.60 17.42 0.0187 -0.0350
1-Mar-05 1180.59 17.89 -0.0193 0.0266
1-Apr-05 1156.85 17.27 -0.0203 -0.0353
2-May-05 1191.50 19.40 0.0295 0.1163
1-Jun-05 1191.33 19.08 -0.0001 -0.0166
1-Jul-05 1234.18 19.15 0.0353 0.0037
1-Aug-05 1220.33 17.62 -0.0113 -0.0833
1-Sep-05 1228.81 17.92 0.0069 0.0169
3-Oct-05 1207.01 17.45 -0.0179 -0.0266
1-Nov-05 1249.48 17.54 0.0346 0.0051
1-Dec-05 1248.29 17.12 -0.0010 -0.0242
3-Jan-06 1280.08 18.57 0.0251 0.0813
1-Feb-06 1280.66 20.24 0.0005 0.0861
1-Mar-06 1294.87 21.67 0.0110 0.0683
3-Apr-06 1310.61 20.95 0.0121 -0.0338
1-May-06 1270.09 19.68 -0.0314 -0.0625
1-Jun-06 1270.20 19.53 0.0001 -0.0077
3-Jul-06 1276.66 17.88 0.0051 -0.0883
1-Aug-06 1303.82 21.99 0.0211 0.2069
1-Sep-06 1335.85 22.98 0.0243 0.0440
2-Oct-06 1377.94 24.13 0.0310 0.0488
1-Nov-06 1400.63 26.91 0.0163 0.1090
1-Dec-06 1418.30 27.33 0.0125 0.0155
3-Jan-07 1438.24 26.62 0.0140 -0.0263
1-Feb-07 1406.82 25.94 -0.0221 -0.0259
1-Mar-07 1420.86 25.53 0.0099 -0.0159
2-Apr-07 1482.37 26.74 0.0424 0.0463
1-May-07 1530.62 26.92 0.0320 0.0067
1-Jun-07 1502.97 27.85 -0.0182 0.0340
2-Jul-07 1519.43 27.89 0.0109 0.0014
 te return series for CSCO and S&P 500.
gression of CSCO return on S&P 500 return and reprot the following table.
et the parameter Beta, t-statistics, and adjusted R-square.
ct fit line plots.

Beta estimation of CSCO

Beta Adjusted R-square
1.846536 0.44604975960716
 A B C D E F
1 COMPUTING THE GORDON DIVIDEND MODEL rE FOR INTEL
2 S0, current stock price 24.23
3 Current dividend, Div0 0.90 Computing the growth rates
4 Cost of equity rE Quarterly
5 10-year 32.12% 10-year 6.24%
6 5-year 14.04% 5-year 2.40%
7 Annualized compound
8 10-year 27.38%
9 5-year 9.95%
10

11 Dividend per
Date share
12 5/May/03 0.020
13 5/Aug/03 0.020
14 5/Nov/03 0.020
15 4/Feb/04 0.040
16 5/May/04 0.040
17 4/Aug/04 0.040
18 3/Nov/04 0.040
19 3/Feb/05 0.080
20 4/May/05 0.080
21 3/Aug/05 0.080
22 3/Nov/05 0.080
23 3/Feb/06 0.100
24 3/May/06 0.100
25 3/Aug/06 0.100
26 3/Nov/06 0.100
27 5/Feb/07 0.113
28 3/May/07 0.113
29 3/Aug/07 0.113
30 5/Nov/07 0.113
31 5/Feb/08 0.128
32 5/May/08 0.140
33 5/Aug/08 0.140
34 5/Nov/08 0.140
35 4/Feb/09 0.140
36 5/May/09 0.140
37 5/Aug/09 0.140
38 4/Nov/09 0.140
39 3/Feb/10 0.158
40 5/May/10 0.158
41 4/Aug/10 0.158
42 3/Nov/10 0.158
43 3/Feb/11 0.181
44 4/May/11 0.181
45 3/Aug/11 0.210
46 3/Nov/11 0.210
 A B C D E F
47 3/Feb/12 0.210
48 3/May/12 0.210
49 3/Aug/12 0.225
50 5/Nov/12 0.225
51 5/Feb/13 0.225
52 3/May/13 0.225
 G
MODEL rE1FOR INTEL
2
3
Computing the growth rates
4
5
6
nualized compound
7
8
9
10

11

12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
WACC
Given Beta 0.7
Risk-free rate, rf 5.5%
Expected market return, E(rM) 13.0%
Cost of debt, rD 8.00%
Corporate tax rate, TC 35.0%
Equity 16.67 Million
Debt 33.33 Million

ASK WACC=?
 Balance Sheet and P&L statement
Sales growth 10%
Current assets/Sales 20%
Current liabilities/Sales 15% This sheet presents ABC Inc.'s base year (y
Net fixed assets/Sales 320% a) Use the data to project the financial state
Costs of goods sold/Sales 50% b) Extend the model to 5 years and calculat
Depreciation rate 5%
Interest earned on cash balances 5%
Tax rate 40%
1 2 3
Year 0
Income statement
Sales 50,000 55,000 60,500 66,550
Costs of goods sold (25,000) (27,500) (30,250) (33,275)
Depreciation (20,000) (20,923) (22,858) (24,977)
Interest earned on cash 7,000 6,477 5,704 5,164
Profit before tax 12,000 13,054 13,096 13,461
Taxes (4,800) (5,222) (5,238) (5,384)
Profit after tax 7,200 7,832 7,858 8,077
Retained earnings 7,200 7,832 7,858 8,077

Balance sheet
Cash 140,000 119,082 109,065 97,479
Current assets 10,000 11,000 12,100 13,310
Fixed assets
At cost 400,000 436,923 477,381 521,718
Depreciation (240,000) (260,923) (283,781) (308,758)
Net fixed assets 160,000 176,000 193,600 212,960
Total assets 310,000 306,082 314,765 323,749

Current liabilities 20,000 8,250 9,075 9,983

Debt - - - -
Stock 275,000 275,000 275,000 275,000
Accumulated retained earnings 15,000 22,832 30,690 38,767
Total liabilities and equity 310,000 306,082 314,765 323,749

FCF
Profit after tax 7,832 7,858 8,077
Plus depreciation 20,923 22,858 24,977
minus change in net assets (1,000) (1,100) (1,210)
plus change in net liabilities (11,750) 825 908
minus change in fixed assets at cost (36,923) (40,458) (44,337)
minus after tax net interest earned (3,886) (3,422) (3,098)
FCF (24,804) (13,440) (14,684)
presents ABC Inc.'s base year (year 0) balance sheet, income statement and assumptions on financial rations/items.
data to project the financial statements for year 1.
he model to 5 years and calculate free cash flows for each year.

4 5

73,205 80,526 =F13*(1+$B$2)

(36,603) (40,263) =-($B$6*G13)
(27,301) (29,848) =-$B$7*(G26+F26)/2
4,541 3,827 =$B$8*(F23+G23)/2
13,843 14,242 =SUM(G13:G16)
(5,537) (5,697) =-(G17*$B$9)
8,306 8,545 =SUM(G17:G18)
8,306 8,545 =G19

84,156 68,909 =G35-G24-G28

14,641 16,105 =$B$3*G13

570,315 623,588 =G28-G27

(336,059) (365,907) =F27-$B$7*(F26+G26)/2
234,256 257,682 =$B$5*G13
333,053 342,696 =G23+G24+G28

10,981 12,079 =$B$4*G13

- - =F32
275,000 275,000 =F33
47,072 55,617 =F34+G20
333,053 342,696 =SUM(G31:G34)

8,306 8,545 =G19

27,301 29,848 =-(G15)
(1,331) (1,464) =-(G24-F24)
998 1,098 =G31-F31
(48,597) (53,273) =-(G26-F26)
(2,725) (2,296) =-(G16)*(1-$B$9)
(16,048) (17,543) =SUM(G38:G43)
 DONNA'S BALANCE SHEET AND INCOME STATEMENT
Value Drivers
Sales growth 15%
Current assets/sales 20%
Current liabilities/sales 14%
Net fixed assets/sales 80% This sheet contains Donna Company's
Costs of goods sold/sales 45% that the interest rate, paid and earned, i
Depreciation rate 10%
Construct a 5-year pro forma model for
is 3% and cost of capital is 15%, find th
Interest rate on debt 8%
growth rate: 1%, 3%, and 5%.
Interest earned on average cash balances 5%
Tax rate 36%
Dividend payout ratio 30%
Annual debt repayments 6,000
pays $6000 of its debt each year
Income statement
Year 0 1 2 3 4
Sales 45,000 51,750 59,513 68,439 78,705
Cost of goods sold (COGS) -33,000 -23,288 -26,781 -30,798 -35,417
Depreciation -4,000 -5,389 -6,726 -8,136 -9,801
Interest on cash 80 318 92 24 0
Interest payments on debt -150 -2,160 -1,680 -1,201 -727
Profit before tax 7,930 21,231 24,418 28,329 32,760
Tax (36%) -2,855 -7,643 -8,790 -10,198 -11,793
Profit after tax 5,075 13,588 15,628 18,130 20,966
Dividend -1,523 -4,076 -4,688 -5,439 -6,290
Retained earnings 3,553 9,511 10,939 12,691 14,676

Balance sheet
Assets
Cash 10,000 2,706 970 0 0
Current assets 4,700 10,350 11,903 13,688 15,741
Fixed assets
At cost 47,000 60,789 73,725 89,003 107,017
Accumulate depreciation -14,000 -19,389 -26,115 -34,252 -44,053
Net Fixed assets 33,000 41,400 47,610 54,752 62,964
Total assets 47,700

Liabilities and Equity

Current liabilities 4,000 7,245 8,332 9,582 11,019
Debt 30,000 24,000 18,000 12,016 6,168
Equity
Equity 10,000 10,000 10,000 10,000 10,000
Accumulated retained earnings 3,700 13,211 24,151 36,842 51,518
Total liabilities and equity 47,700 54,456 60,482 68,439 78,705

Free cash flow calculation

Year 0 1 2 3 4
Profit after tax 13,588 15,628 18,130 20,966
Add back depreciation 5,389 6,726 8,136 9,801
Subtract increase in current assets -5,650 -1,553 -1,785 -2,053
Add back increase in current liabilities 3,245 1,087 1,250 1,437
Subtract increase in fixed assets at cost -13,789 -12,936 -15,278 -18,014
Add back after-tax interest on debt 1,382 1,075 768 466
Subtract after-tax interest on cash and mkt. securities -203 -59 -16 0
Free cash flow 3,962 9,968 11,206 12,603

Terminal Value Growth Rate 3.0%

Weighted Average Cost of Capital 15.0%

Present Value of Free Cash Flow 0 1 2 3 4

3,962 9,968 11,206 12,603
3,962 9,968 11,206 12,603
Enterprise Value 93,115 =NPV(B59,C63:G63)
Add back cash at t=0 10,000 =B30
Asset Value 103,115 =SUM(B64:B65)
Subtract Debt at t=0 -30,000 =-(B40)
Equity Value 73,115 =B66+B67

Cash and Marketable Securities as Negative Debt

Enterprise Value 93,115 =NPV(B59,C63:G63)

Year Zero Debt -20,000 =-B40+B30
Equity Value 73,115 =SUM(B72:B73)

Sensitivity Analysis

cost of cap 10, 15, 20

terminal growth 1, 3, 5
WACC
73,115 10% 15% 20%
1% =MULTIPLE.OPERATIONS($A$81,$B$58,$
3%
5%
ENT

tains Donna Company's B/S, I/S and value drivers. Assume that Donna Company pays $6,000 of its debt every year and
st rate, paid and earned, is on average debt and cash balance, respectively, and the depreciation is on average fixed assets.
-year pro forma model for Donna Company and compute free cash flows. Assume that the firm's terminal value growth rate
of capital is 15%, find the value of equity. Perform a sensitivity analysis with cost of capital: 10%, 15% and 20%; terminal
%, 3%, and 5%.

paid and earned on avg debt and cash depr is on avg fixed assets

5
90,511 =F17*(1+$B$3)
-40,730 =-($B$7*G17)
-11,762 =-$B$8*(G33+F33)/2
19 =$B$10*(F30+G30)/2
-253 =-($B$9)*(F40+G40)/2
37,785 =SUM(G17:G21)
-13,603 =-$B$11*G22
24,182 =G22+G23
-7,255 =-$B$12*G24
16,928 =G24+G25

775 =G44-G31-G35
18,102 =$B$4*G17

128,223 =G35-G34
-55,815 =F34-$B$8*(G33+F33)/2
72,409 =$B$6*G17

12,672 =$B$5*G17
168 =MAX(G31+G35-G39-G42-G43,F40-6000)

10,000 =F42
68,446 =F43+G26
91,286 =G39+G40+G42+G43

5
24,182 =G24
11,762 =-(G19)
 -2,361 =-(G31-F31)
1,653 =(G39-F39)
-21,207 =-(G33-F33)
162 =-(1-$B$11)*G21
-12 =-(1-$B$11)*G20
14,179 =SUM(G49:G55)

5 TV
14,179 =G56 121,705 =G62*(1+B58)/(B59-B58)
135,884 =G62+I62

PERATIONS($A$81,$B$58,$A82,$B$59,D$81)
bt every year and
verage fixed assets.
l value growth rate
and 20%; terminal
 Yummy Company, Financial Model
Sales growth 12%
Current assets/Sales 22% Additional model assumptions:
Current liabilities/Sales 20% 1. Debt repayments are $300,000 each yea
Net fixed assets (annual growth rate) 5% 2. Cash is the plug
Costs of goods sold/Sales 45% 3. FCF evaluation is for 5-year period. The
Depreciation rate 10% Find the value of the firm using DCF methods
Interest rate on debt 8% A) Show how the company value and its share
Interest earned on cash balances 4% B) Show in a graph the sensitivity of enterprise
Tax rate 36% C) Show in a graph the sensitivity of enterprise
Dividend payout ratio 25%

Year 0 1 2 3
Income statement
Sales 2,000,000
Costs of goods sold (900,000)
Depreciation (400,000)
Interest payments on debt (240,000)
Interest earned on cash 18,400
Profit before tax 478,400
Taxes (172,224)
Profit after tax 306,176
Dividends (76,544)
Retained earnings 229,632

Balance sheet
Cash 460,000
Current assets 440,000
Fixed assets
At cost 4,000,000
Accumulate Depreciation (500,000)
Net fixed assets 3,500,000
Total assets 4,400,000

Current liabilities 400,000

Debt 3,000,000
Stock (1,500,000 shares, par value $0.5 each) 750,000
Accumulated retained earnings 250,000
Total liabilities and equity 4,400,000

Year 0 1 2 3
Free cash flow calculation

Free cash flow 0 0 0

Firm value estimation using end-year discounting
Weighted average cost of capital 16%
Long-term FCF growth rate 4%

Present Value of Free Cash Flow

FCF

NPV

Enterprise Value

Equity Value
Share Value

Sensitivity Analysis Equity Value

sumptions:
nts are $300,000 each year

n is for 5-year period. The terminal value is determined using long-term growth rate.
e firm using DCF methods and year-end discounting.
mpany value and its share value change if mid-year discounting is used.
the sensitivity of enterprise value (of the year-end discounting) to the sales growth rate.
the sensitivity of enterprise value (of the year-end discounting) to WACC.

4 5

4 5

0 0
 Estimate the value of change for Compaq and Digital merge
Assumptions
Revenues 13046 In the first 5 years
EBIT 391.38 Rf
Depreciation 461 Rm
Capital Expenditure 475 Beta
g1 in 5 years 6% Rd
g2 after 5 years 5%
NWC/Revenues 15%
Debt/Asset 10%
T 36%
Operating margin 3%
Operating income, depreciation, capital expenditure, and revenues are expected to grow at 6% per year in first 5 years and the
After 5 years, the capital expenditures are assumed to be 110% of depreciation; working capital remains 15%
Debt ratio remains at 10%, but after-tax cost of debt drops to 4%. Beta declines to 1

Change in Control Atfer 5 years

Additional assumptions
Debt ratio 20% 20%
g 10% 5%
Operating margin 4% 4%
After-tax Rd 5.25% 4%

Estimation of WACC
In first 5 yers Re =
Rd=
WACC=

After 5 years Re =
Rd=
WACC=

FCF estimation
year 0 1 2 3
Sales 13046.00
EBIT 391.38
EBIT*(1-T) 250.48
NCE 14.00
NWC 1956.90
dNWC
FCF
Terminal Value
FCF Total

Enterprise Value
Change of Control
Estimation of WACC
In first 5 yers b_u= #N/A
Re = #N/A
WACC= #N/A

After 5 years Re = #N/A

WACC= #N/A

FCF estimation
year 0 1 2 3
Sales
EBIT
EBIT*(1-T)
NCE
NWC
dNWC
FCF
Terminal Value
FCF Total

Enterprise Value with control change #NAME?

Entreprise value (Status Quo) #NAME?
Value of Control #NAME?
Compaq and Digital merge

e first 5 years After 5 years

6%
11.50%
1.15 1
7.81% 6.25%

6% per year in first 5 years and then 5% year after 5 years except for capital expenditures.
king capital remains 15%

Operating income, net capital expenditure, and revenues are expected to grow at 10% per year in first 5 years and
After 5 years, the capital expenditures are assumed to be 110% of depreciation; working capital remains

4 5 6
#N/A #N/A
#N/A #N/A
#N/A #N/A
#N/A #N/A
#N/A #N/A
#N/A #N/A
#N/A #N/A
#N/A
#N/A
 with new Debt ratio b_l= #N/A
Rd= #N/A

R_d= #N/A

4 5 6
#N/A #N/A
#N/A #N/A
#N/A #N/A
#N/A #N/A
#N/A #N/A
#N/A #N/A
#N/A #N/A
#N/A
#N/A
at 10% per year in first 5 years and then 5% year after 5 years.
iation; working capital remains 15%; and beta declines to 1