FINANCIAL MODELING FALL SEMESTER 2013 INDIVIDUAL FINAL PROJECT COMPANY VALUATION Forecast the Income Statements, Balance

Sheets, and Free Cash Flows of a publicly traded, non-financial, U.S. company for five years (2 !"#2 !$% and determine the stoc& value based on free cash flows. I. 'o (et your company approved, submit to me the )alue *ine report of a company by +ovember !,. Companies, which will be approved accordin( to the First Come First -pproved principle, must meet the followin( criteria. !. /ublicly traded non#financial U.S. company. 2. 'he company0s fiscal year ends in 1ecember (there is no footnote in the )alue *ine 2eport indicatin( a different fiscal year endin( month%. ". 'he company has +et /rofit, 1epreciation, 3or&in( Capital, Capital Spendin(, and *on( 'erm 1ebt, indicated in the )alue *ine 2eport. 4+ote. +one of these numbers should be preceded by the letter d, which denotes a ne(ative number.5 6. 'he company0s pro7ected Capital 89penditure e9ceeds its 1epreciation in the last column of the )alue *ine report. :. 'he sum of the company0s pro7ected +et /rofit and 1epreciation e9ceeds the sum of its Capital 89penditure and annual Increase in +et 3or&in( Capital in the last column of the )alue *ine report. 4'o (et the company0s )alue *ine report. a% ;o to www.valueline.com in the S*2 *ab. b% 'ype your company0s tic&er symbol in the Search bo9 (top%, clic& Search c% Clic& )iew Full 2esearch 2eport (top% d% Clic& the /rint icon (top left%, clic& <&. II. <btain the followin( three additional printouts for your approved company from =ahoo Finance. Income Statement and Balance Sheet Financials for the last three years, >ey Statistics, -nalyst <pinion III. 1ownload the company valuation template (C)F!"% from Blac&board (Content tab%. Complete the 89cel file, usin( your data sources, the attached detailed instructions, and the completed ;8 printouts provided as a (uideline. !. Create a similar 89cel file for your company, with modifications for your company0s income statement and balance sheet items, if necessary. 2. Save the file with your last name followed by the company0s tic&er symbol (for e9ample, /rice;8%. ". /rint your :#pa(e 89cel file with 2ow and Column ?eadin(s and a footer showin( the file name, pa(e number, and date

I). 3rite a report containin( your company0s name in the title and your name on the first pa(e, answerin( the followin( @uestions in 2 to " pa(es (!2#point font, double spaced%. !. ;ive one ma7or ar(ument for, and one ma7or ar(ument a(ainst, usin( the 'reasury Bill return, instead of the 'reasury Bond return, as the ris&#free rate for calculatin( the cost of e@uity usin( the Capital -sset /ricin( Aodel. 2. *ist three ma7or stren(ths and three ma7or wea&nesses of the 1iscounted Free Cash Flows methods of Stoc& )aluation. ". *ist three ma7or characteristics of companies for which it is inappropriate to use the 1iscounted Free Cash Flows methods of Stoc& )aluation. 6. Based on the Stoc& )alue and /ro7ected !#=ear 2eturn calculated by you, would you recommend buyin( it at the current priceB 3hy or why notB :. 1oes your Stoc& )alue appear to be reasonableB If yes, list three &ey features of the valuation model that provided a reasonable stoc& value. If not, list three &ey features of the valuation model that provided an unreasonable stoc& value. C. *ist your three most important su((estions for improvin( the inputs in this stoc& valuation modelB 3hy do you consider these the most important improvementsB ). Submit the followin( to me by " p.m. on the due date (+ovember 2$ for prospective (raduates and 1ecember 6 for others%. !. =our completed 89cel file e#mailed to fina"C"D(mail.com. 2. /rintout of your :#pa(e 89cel file. ". /rintout of your written report. 6. /rintouts of all your data sources ()alue *ine. !, =ahoo Finance. 65

PROJECTED FINANCIAL STATEMENTS AND VALUATION DETAILED INSTRUCTIONS I. FINANCIAL STATEMENTS (COLUMNS B:D) !. 8nter your Company +ame, 'radin( 89chan(e, and 'ic&er Symbol in cell -!. 2. 8nter the income statement and balance sheet numbers for 2 , throu(h 2 !! in millions from =ahoo Finance, which shows the numbers in reverse order in thousands. Aodify the template to show all items, and only those items, that are relevant for your company. ". 8nter formulas with cell references for all the subtotals and totals, mar&ed in bold for ;8, which apply to your company. For e9ample, ;ross /rofit, <peratin( Income, 8arnin(s Before Interest and 'a9es, Income Before 'a9, +et Income from Cont. <ps., +et Income, 'otal Current -ssets, 'otal -ssets, 'otal Current *iabilities, 'otal *iabilities, 'otal Stoc&holder 8@uity, 'otal *iabilities and 8@uity. (+ote. 'o calculate subtotals and totals, subtract e9penses entered as positive numbers and add e9penses entered as ne(ative numbers.% 6. -d7ust any numbers that need to be ad7usted so that all the subtotals and totals match those from =ahoo. :. Format the numbers with commas, ne(atives in parentheses, no decimals. II. FINANCIAL ITEM PERCENTAGES (COLUMNS H:K) !. Calculate most of the income statement and balance sheet items for 2 , throu(h 2 !! as percenta(es of 'otal 2evenues for those years. Insert any additional items that appear in the Income Statement or Balance Sheet of your company (e9cept *on( 'erm InvestmentsE /roperty, /lant, and 8@uipmentE ;oodwillE Intan(ible -ssetsE <ther -sssetsE <ther *iabilitiesE 1eferred *on( 'erm *iability Char(esE Ainority InterestE Common Stoc&E 2etained 8arnin(sE 'reasury Stoc&E Capital SurplusE and <ther Stoc&holder 8@uity, which will be assumed to be constant or based on formulas% and delete any items that do not appear. =ou should write a formula in cell ?C, with relative and absolute cell references, as appropriate, and copy it down and across to column F for all the relevant income statement and balance sheet items that are percenta(es of 'otal 2evenues. 2. Calculate the Interest 89pense as a percenta(e of 'otal Short 'erm 1ebt and *on( 'erm 1ebt. ". Calculate the *on( 'erm 1ebt as a percenta(e of 'otal Stoc&holder 8@uity. 6. In cell >C, use the median function to calculate the median percenta(e of the three years and copy it down to the other items. :. Format the cells as percenta(es with two decimals. III. FINANCIAL ITEM INPUTS (COLUMN M) !. Calculate the /ro7ected 2evenue ;rowth 2ate usin( the followin( formula with cell references to G6 and '6. H (2 !$ 'otal 2evenue I 2 !" 'otal 2evenue%!I6 #! "

(+ote. 'his formula will not wor& until the numbers are entered in cells G6 and '6.% 2. 8nter the pro7ected Income 'a9 2ate for 2 !:#!$ from )alue *ine in A!!. ". Use formulas with cell references to (et the median percenta(es of the income statement and balance sheet items from column > if the percenta(es fluctuate, or the last year0s percenta(es from column F if the percenta(es show a risin( or fallin( trend, in the last " years. 6. For the items where you used the last year0s percenta(es, indicate it in column +. :. *on( 'erm InvestmentsE ;oodwillE Intan(ible -ssetsE <ther -ssetsE <ther *iabilitiesE 1eferred *on( 'erm *iability Char(esE Ainority InterestE Common Stoc&E 'reasury Stoc&E Capital SurplusE and <ther Stoc&holder 8@uity will be assumed to be constant. For /roperty, /lant and 8@uipmentE and 2etained 8arnin(sE &eep the formulas that will be used to calculate these items. C. -fter you have identified the plu( item in the ne9t section, type /lu( ne9t to the percenta(e for that item in column +. IV. FINANCIAL STATEMENTS: 2012 1! (COLUMNS S:") !. 8nter the 2evenues for 2 !2, 2 !", and 2 !$ from )alue *ine in millions of dollars. 2. Use the /ro7ected 2evenue ;rowth 2ate in cell A" to pro7ect the 'otal 2evenues for 2 !6#2 !C. ". From the <ffice Button, select 89cel <ptions, Formulas, and set Aa9imum Iterations to : . 6. Copy the formulas with cell references for all the subtotals and totals, mar&ed in bold for ;8, which apply to your company, from column 1. For e9ample, ;ross /rofit, <peratin( Income, 8arnin(s Before Income and 'a9es, Income Before 'a9, +et Income from Cont. <ps., +et Income, 'otal Current -ssets, 'otal -ssets, 'otal Current *iabilities, 'otal *iabilities, 'otal Stoc&holder 8@uity, 'otal *iabilities and 8@uity. :. Use the input percenta(es in column A to calculate the income statement and balance sheet items as percenta(es of 'otal 2evenues or other items, as indicated in column *. C. 8nter the payout ratios (-ll 1ivs. to +et /rofit% for 2 !2, 2 !", and 2 !$ from )alue *ine and interpolate the numbers in between to show e@ual chan(es, usin( formulas with cell references. $. Calculate the 1ividend amounts by multiplyin( the +et Income by the payout ratio each year. J. Calculate the -dditions to 2etained 8arnin(s as the difference between +et Income and 1ividends in each year. ,. Use formulas to calculate the /roperty, /lant, and 8@uipment in each year usin( the formula shown in column A. (2 !2 //8 H 2 !! //8 K 2 !2 Capital Spendin( per Share L Common Shares <utstandin( from )alue *ine M 2 !2 1epreciation from )alue *ine. 2 !" //8 H 2 !2 //8 M (#Capital 89penditures in cell --,% M 1epreciation in cell --C. Copy the 2 !" //8 formula across to 2 !$.% ! . Use formulas with cell references to (et the constant amounts of *on( 'erm InvestmentsE ;oodwillE Intan(ible -ssetsE <ther -ssetsE <ther *iabilitiesE 1eferred *on( 'erm *iability Char(esE Ainority InterestE Common Stoc&E 'reasury Stoc&E 6

Capital Surplus, and <ther Stoc&holder 8@uity from 2 !! in column 1. !!. Use formulas with cell references to calculate the 2etained 8arnin(s in each year, usin( the formula shown in column A. (+ote. 'he 2 !2 formula will use 2etained 8arnin(s from 2 !!, and the 2 !" formula will use 2etained 8arnin(s from 2 !2. 'he 2 !" formula can be copied across.% !2. If the 'otal -ssets e9ceed the 'otal *iabilities and 8@uity, use Short 'erm 1ebt or, if your company doesn0t have it, then *on( 'erm 1ebt as the plu( item to balance your balance sheet. If the 'otal -ssets are less than the 'otal *iabilities and 8@uity, use Short 'erm Investments, or, if your company doesn0t have it, then Cash and Cash 8@uivalents, as the plu( item. 8nter the formula for your plu( item with cell references for 2 !2 and copy it across. !". 8nsure that the balance sheet is balanced in each year. V. FREE CASH FLO#S AND STOCK VALUATION (COLUMNS AA:AF) !. 8nter the 2 !" and 2 !$ 1epreciation numbers from )alue *ine and interpolate the numbers in between to show e@ual chan(es, usin( a formula with cell references. 2. Use formulas with cell references to calculate the individual items and free cash flows for 2 !"#2 !$. (+ote. 'he free cash flows are calculated from 2 !", not 2 !2, but you need the 2 !2 Balance Sheet numbers to calculate some of the 2 !" items.% ". <peratin( Current -ssets do not include Cash and Cash 8@uivalents or Short#term Investments. <peratin( Current *iabilities do not include Short 'erm 1ebt or +otes /ayable. 6. For Capital 89penditures, multiply #Capital Spendin( per Share by Common Shares outstandin( for 2 !" and 2 !$ from )alue *ine and interpolate the numbers in between to show e@ual chan(es, usin( a formula with cell references. :. Sum all the items to (et the Free Cash Flows to Firm for each year. C. Use the 89pected Aar&et 2eturn and the 'reasury Bill 2eturn to calculate the Aar&et 2is& /remium. $. 8nter the Beta of your company from )alue *ine. J. Calculate the -d7usted Beta as 2I" L Beta K !I" ,. Use the Capital -sset /ricin( Aodel formula to calculate the Cost of 8@uity. ! . 8nter the and Common Shares <utstandin( (in Aillions% from =ahoo Finance >ey Statistics and the Stoc& /rice from =ahoo Finance -nalyst <pinion. !!. Use the Common Shares <utstandin( and Stoc& /rice to calculate the Aar&et )alue of 8@uity. !2. Use the total Short 'erm 1ebt and *on( 'erm 1ebt in 2 !2 from column S and the Aar&et )alue of 8@uity from above to calculate the /roportion of 1ebt. !". Use the /roportion of 1ebt to calculate the /roportion of 8@uity. !6. Use cell references to column A to (et the Cost of 1ebt (Interest 89pense N of 'otal 1ebt% and Income 'a9 2ate. !:. Use the /roportions of 1ebt and 8@uity, -fter#'a9 Cost of 1ebt, and Cost of 8@uity to calculate the 3ei(hted -vera(e Cost of Capital. !C. Infinite FCF ;rowth 2ate H Ain (3ei(hted -vera(e Cost of Capital L .:, :N%. !$. 'ype the date of your =ahoo -nalyst <pinion in cell --2:. !J. 3rite formulas with cell references to (et the Free Cash Flows to Firm for the years :

2 !"#2 !$ in row 2C from row !! above. !,. 3rite a formula with cell references to calculate the 'erminal )alue of Free Cash Flows in cell -F2$ based on infinite (rowth of the Free Cash Flows after 2 !$. 2 . 3rite formulas with cell references to calculate the 'otal Free Cash Flows to the Firm each year. 2!. Use the G+/) function to calculate the 8nterprise )alue and ad7ust it for mid#year discountin(. 22. 8nter the 'otal Cash in cell --" and 'otal 1ebt in cell --"2 from =ahoo Finance >ey Statistics. 2". 3rite formulas with cell references to calculate the Firm )alue and 8@uity )alue (FCF Aethod%. 26. 3rite a formula with cell references to calculate the Stoc& )alue, usin( the 8@uity )alue (FCF Aethod% and the Common Shares <utstandin( in cell -B 2 . 2:. 8nter the -vera(e -nnual /I8 2atio for 2 !:#!$ from )alue *ine as the /ro7ected /I8 2atio in cell -F"$. 2C. 3rite formulas with cell references to calculate the Increase in *on( 'erm 1ebt in each year from the Financial Statements in columns S.G. 2$. 3rite formulas with cell references to calculate Free Cash Flows to 8@uity as Free Cash Flows to Firm M -fter#ta9 Interest 89pense K Increase in *on( 'erm 1ebt from above. 2J. 3rite a formula with cell references to calculate the 'erminal )alue of Free Cash Flows to 8@uity usin( the net Income in 2 !$ and /ro7ected /I8 2atio from above. 2,. 3rite formulas with cell references to calculate the 'otal Free Cash Flows to 8@uity each year. " . Use the G+/) function to calculate the 8@uity )alue (FC8 Aethod% as the /resent )alue of the 'otal Free Cash Flows to 8@uity and ad7ust it for mid#year discountin(. "!. 3rite a formula with cell references to calculate the Stoc& )alue, usin( the 8@uity )alue (FC8 Aethod% and the Common Shares <utstandin( in cell -B 2 . "2. 3rite a formula with cell references to calculate the 8stimated Stoc& )alue as the avera(e of the Stoc& )alues obtained with the FCF and FC8 methods. "". 3rite an If Statement with cell references to show Undervalued if the 8stimated Stoc& )alue is more than !! N of the Stoc& /rice, <vervalued if the 8stimated Stoc& )alue is less than , N of the Stoc& /rice, and <&ay otherwise. "6. Calculate the 'ar(et /rice as 8stimated Stoc& )alue L (! K Cost of 8@uity%. ":. Calculate the /ro7ected !#=ear ;ain as the percenta(e difference between the 'ar(et /rice and the Stoc& /rice. "C. 'ype the Forward -nnual 1ividend =ield from =ahoo Finance >ey Statistics. "$. 3rite a formula with cell references to calculated the /ro7ected !#=ear 2eturn as the sum of the /ro7ected !#=ear ;ain and the Forward -nnual 1ividend =ield. "J. 3rite a formula with cell references to calculate the 'reynor Inde9 as. (/ro7ected !# =ear 2eturn M 'reasury Bill 2eturn% I -d7usted Beta ",. 'ype the 'hompsonIFirst Call /rice 'ar(et numbers from =ahoo Finance -nalyst <pinion. (Be careful to type the numbers in the correct cells.%