Exhibit 16- 5 Present Value of McClatchey Company Using the Adjusted Present Valu

2010
2011
General Assumptions:
Comparable Company Unlevered Betaa
10 Year Treasury Bond Rate (%)
Cum. Probability of Default for Firm Rated B-b
Equity Premium
Specific Company Data: McClatchy
Price/sh @3/10/2010
Fully Diluted Shares outstanding
Market Value (MV) of Equity 3/10/2010
Market Value (MV) of Debt 3/10/2010c
MV of Debt / MV of Equity Ratio
Weighted average maturity of Mclatchy debt
McClatchy Credit Rating
McClatchy Company Assumptions:
Price to Earnings Ratio
Target Debt / Equity Ratio @2015
Implied Target Debt/Total Capital Ratio @2015d
Current Cost of Debte
Expected Cost of Bankruptcy (% of Firm Value)
Terminal Period Growth Rate
Unlevered Cost of Equity (2011 - 2015)f
Terminal Period WACCg
Revenue
Net Income (3.8% of revenue)
Depreciation (8% of revenue)
Change in Working Capital (3.5% of revenue)
Gross Capital Spending
Principal Repayments
Dividends Paid
Equity Cash Flow
Interest expense
Tax Shield (40% of interest expense)
Present Value:
PV Equity Cash Flow @9.89%
PV Terminal Value
Total PV
Plus: PV of Tax Shield
Adjusted Present Value of Firm
Less: Expected Cost of Bankruptcy @15%
Expected Cost of Bankruptcy @20%
Expected Cost of Bankruptcy @25%
Expected Cost of Bankruptcy @30%
Expected Cost of Bankruptcy @35%
Expected Cost of Bankruptcy @40%
Less: Market Value of Debt
Equals: Equity Value
Equals: Equity Value Per Share
Notes:

1.1344
3.65
0.4212
0.055
5.19
84,470,000
$438,399,300
$740,249,905
1.69
9.6 years
B6.00
0.33
0.25
10.65
.15 - .25
0.03
0.0989
0.0862
$1,471,584,000
$54,090,000
$142,889,000
$73,579,000
$13,574,000
$64,200,000
$14,905,000
$30,721,000
$107,353,000
$42,941,200

$650,896,030
$666,224,915
1.02

4.00

$1,398,004,800
$53,124,182
$111,840,384
$48,930,168
$13,980,048
$74,024,991
$10,905,000
$17,124,360
$96,617,700
$38,647,080

$2,026,598
$1,445,999,847
$1,448,026,445
$3,868,418
$1,451,894,863
$217,784,229
$290,378,973

$740,249,837
$493,860,796
$5.85

$740,249,837
$421,266,053
$4.99

Comparable company unlevered beta = comparable company levered beta / (1 + (1 - marginal tax rate) x comparable compan
= 1.924 / (1 + (1 - .4) x 1.16) = 1.1344 (Based on top 10 U.S. newspapers in terms of marke
b
See Exhibit 13 - in Chapter 13.
c
Market value of debt = Interest Expense x {[1 - 1 / (1 + i)n ] / 1+ i} + Face value of debt / (1+ i)n =
= $107,353,000 x {[1 - 1 / (1.1065)9.6 ] / 1.1065} + 1,796,436,000 / (1.1065)9.6 = 60,298,095 + 679,951,810 =
d
Implied debt to total capital ratio = (D/E) / (1 + D/E) =.33 / 1.33 = .25
e
Cost of debt equals the risk free rate of 3.65 percent plus a 7 percent default spread based on McClatchy's rating of B- from S
f
Unlevered Cost of Equity = .0365 + 1.1344 (.055) = .0989
g
Terminal Period WACC = .25 x (1 - .4) x .08 + .75 x .0989 = .012 + .0742 = .0862

ompany Using the Adjusted Present Value Method

2012
2013

$854,892,890
$599,602,423
0.70

$1,054,809,813
$539,642,181
0.51

2014

2015

$1,307,204,929
$485,677,963
0.37

$1,616,136,550
$437,110,166
0.27
A

4.00

4.00

5.00

6.00

0.08

$1,342,084,608
$50,999,215
$107,366,769
$46,972,961
$20,131,269
$66,622,491
$5,905,000
$18,734,262
$86,955,930
$34,782,372

$1,315,242,916
$49,979,231
$105,219,433
$46,033,502
$26,304,858
$59,960,242
$5,905,000
$16,995,061
$78,260,337
$31,304,135

$1,328,395,345
$50,479,023
$106,271,628
$46,493,837
$33,209,884
$53,964,218
$5,905,000
$17,177,712
$70,434,303
$28,173,721

$1,354,963,252
$51,488,604
$108,397,060
$54,198,530
$33,874,081
$48,567,796
$5,905,000
$17,340,256
$63,390,873
$25,356,349

$362,973,716
$435,568,459
$508,163,202
$740,249,837
$348,671,310
$4.13

$740,249,837
$276,076,567
$3.27

$740,249,837
$203,481,824
$2.41

$580,757,945
$740,249,837
$130,887,081
$1.55

1 - marginal tax rate) x comparable company debt / equity) =

n top 10 U.S. newspapers in terms of market capitalization.

debt / (1+ i)n =

0 / (1.1065)9.6 = 60,298,095 + 679,951,810 = $740,249,905

ad based on McClatchy's rating of B- from S&P