Year 0 1 2 3 Income Statement

Sales growth
Current assets/Sales
Current liabilities/Sales
Net fixed assets/Sales
Costs of goods sold/Sales
Depreciation rate
Interest rate on debt
Interest paid on cash and marketable securities
Tax rate
Dividend payout ratio
Year
Income statement
Sales
Costs of goods sold
Interest payments on debt
Interest earned on cash and marketable securities
Depreciation
Profit before tax
Taxes
Profit after tax
Dividends
Retained earnings
10%
15%
8%
77%
50%
10%
10.00%
8.00%
40%
40%
0
1,000
(500)
(32)
6
(100)
374
(150)
225
(90)
135
1,100
(550)
(32)
9
(117)
410
(164)
246
(98)
148
1,210
(605)
(32)
14
(137)
450
(180)
270
(108)
162
1,331
(666)
(32)
20
(161)
492
(197)
295
(118)
177
Balance sheet
Cash and marketable securities
Current assets
Fixed assets
At cost
Depreciation
Net fixed assets
Total assets
80
150
144
165
213
182
289
200
1,070
(300)
770
1,000
1,264
(417)
847
1,156
1,486
(554)
932
1,326
1,740
(715)
1,025
1,513
Current liabilities
Debt
Stock
Accumulated retained earnings
Total liabilities and equity
80
320
450
150
1,000
88
320
450
298
1,156
97
320
450
460
1,326
106
320
450
637
1,513
Year
0
Free cash flow calculation
Profit after tax
Add back depreciation
Subtract increase in current assets
Add back increase in current liabilities
Subtract increase in fixed assets at cost
Add back after-tax interest on debt
Subtract after-tax interest on cash and+A14 mkt. securities
Free cash flow
246
117
(15)
8
(194)
19
(5)
176
270
137
(17)
9
(222)
19
(9)
188
295
161
(18)
10
(254)
19
(12)
201
CONSOLIDATED STATEMENT OF CASH FLOWS: RECONCILING THE CASH BAL

Cash flow from operating activities
Profit after tax
Adjust for changes in net working capital:
Net cash from operating activities
246
117
270
137
295
161
(15)
8
356
(17)
9
400
(18)
10
448
(194)
0
0
(194)
(222)
0
0
(222)
(254)
0
0
(254)
Cash flow from financing activities

Net proceeds from borrowing activities
Net proceeds from stock issues, repurchases
Dividends paid
Net cash from financing activities
0
0
(98)
(98)
0
0
(108)
(108)
0
0
(118)
(118)
Net increase in cash and cash equivalents

Check: changes in cash and mkt. securities
64
64
70
70
76
76
Cash flow from investing activities

Aquisitions of fixed assets--capital expenditures
Purchases of investment securities
Proceeds from sales of investment securities
Net cash used in investing activities
=IF(B76<=B3,"nmf",B87)
=IF(B76<=B3,"nmf",B87)
1,464
(732)
(32)
26
(189)
538
(215)
323
(129)
194
1,611
(805)
(32)
33
(220)
587
(235)
352
(141)
211
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
371
220
459
242
#NAME?
#NAME?
2,031
(904)
1,127
1,718
2,364
(1,124)
1,240
1,941
#NAME?
#NAME?
#NAME?
#NAME?
117
320
450
830
1,718
129
320
450
1,042
1,941
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
323
189
(20)
11
(291)
19
(16)
214
352
220
(22)
12
(333)
19
(20)
228
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
ECONCILING THE CASH BALANCES

323
189
352
220
#NAME?
#NAME?
(20)
11
502
(22)
12
562
#NAME?
#NAME?
#NAME?
(291)
0
0
(291)
(333)
#NAME?
0 <-- Not in our model
0 <-- Not in our model
(333)
#NAME?
0
0
(129)
(129)
0
0
(141)
(141)
#NAME?
#NAME?
#NAME?
#NAME?
82
82
88
88
#NAME?
#NAME?
The answers for this question are given on the previous spreadsheet
EXERCISE 2
Sales growth
Sales, general and administrative expenses
Depreciation rate
Interest paid on cash & marketable securities
Tax rate
Year
Income statement
Sales
Costs of goods sold
SG&A
Interest earned on cash & marketable securities
Depreciation
Profit before tax
Taxes
Profit after tax
Dividends
Retained earnings
10%
15%
8%
77%
50%
200 <-- Added
10%
10.00%
8.00%
40%
40%
0
1,000
(500)
(32)
6
(100)
374
(150)
225
(90)
135
1,100
(550)
(200)
(32)
6
(117)
207
(83)
124
(50)
75
1,210
(605)
(200)
(32)
5
(137)
241
(96)
145
(58)
87
1,331
(666)
(200)
(32)
5
(161)
277
(111)
166
(67)
100
Balance sheet
Current assets
Fixed assets
At cost
Depreciation
Net fixed assets
Total assets
80
150
71
165
65
182
63
200
1,070
(300)
770
1,000
1,264
(417)
847
1,083
1,486
(554)
932
1,178
1,740
(715)
1,025
1,288
Current liabilities
Debt
Stock
80
320
450
150
1,000
88
320
450
225
1,083
97
320
450
311
1,178
106
320
450
411
1,288
Year
Profit after tax
124
117
(15)
8
(194)
19
145
137
(17)
9
(222)
19
166
161
(18)
10
(254)
19
Subtract after-tax interest on cash & mkt. securities

Free cash flow
(4)
56
(3)
68
(3)
81
Valuing the firm

Weighted average cost of capital
Year
FCF
Terminal value
Total
20%
0
NPV of row 61
Add in initial (year 0) cash and mkt. securities
Enterprise value
Subtract out value of firm's debt today
Equity value
56
68
81
56
68
81
709 <-- =NPV(B56,C61:G61)

80
789
-320
469
Cash and marketable securities as negative debt

NPV of row 61 = enterprise value
Net year 0 debt
Equity value
709
-240 <-- =-B37+B28
469
Valuing the firm--using mid-year discounting

Year
FCF
Terminal value
Total
20%
0
NPV of row 81
Enterprise value
Equity value
Data table: Value as function

of SG&A
56
68
81
56
68
81
850 <-- =NPV(B76,C81:G81)*(1+B76)

80
930
-320
610
0
50
100
150
200
250
300
350
400
450
500
550
610 #NAME?
1,677
1,411
Effect
1,144
877
2,000
610
1,500
343
1,000
77
500
-190
0
-457
-500 0
-724
-1,000
-991
-1,500
-1,257
-2,000
Value
of SG&A on Equi
Data table: Value as function

of SG&A and sales growth
600
-1,524
610
0
50
100
150
200
250
300
350
400
450
500
550
600
0%
1,028
848
668
488
308
128
nmf
nmf
nmf
nmf
nmf
nmf
nmf
-2,000
3%
1,143
947
752
557
362
166
nmf
nmf
nmf
nmf
nmf
nmf
nmf
6%
1,306
1,089
872
655
438
220
3
nmf
nmf
nmf
nmf
nmf
nmf
1,464
(732)
(200)
(32)
5
(189)
317
(127)
190
(76)
114
1,611
(805)
(200)
(32)
5
(220)
359
(144)
215
(86)
129
65
220
72
242
2,031
(904)
1,127
1,412
2,364
(1,124)
1,240
1,553
117
320
450
525
1,412
129
320
450
654
1,553
190
189
(20)
11
(291)
19
215
220
(22)
12
(333)
19
(3)
94
(3)
108
5
94
94
108
1,191 <-- =G59*(1+B3)/(B56-B3)
1,300
5
94
94
108
1,191 <-- =G72*(1+B3)/(B69-B3)
1,300
Effect of SG&A on Equity Value
100
200
300
400
500
600
SG&A
9%
1,559
1,308
1,057
806
555
304
53
nmf
nmf
nmf
nmf
nmf
nmf
12%
2,002
1,692
1,382
1,071
761
451
141
nmf
nmf
nmf
nmf
nmf
nmf
15%
2,976
2,536
2,095
1,655
1,214
774
333
nmf
nmf
nmf
nmf
nmf
nmf
EXERCISE 3
Sales growth
Fixed assets at cost/Sales
Depreciation rate
Tax rate
Year
Income statement
Sales
Costs of goods sold
Depreciation
Profit before tax
Taxes
Profit after tax
Dividends
Retained earnings
10%
15%
8%
100%
50%
10%
10.00%
8.00%
40%
40%
0
1,000
(500)
(32)
6
(100)
374
(150)
225
(90)
135
1,100
(550)
(32)
(18)
(109)
392
(157)
235
(94)
141
1,210
(605)
(32)
(45)
(116)
412
(165)
247
(99)
148
1,331
(666)
(32)
(52)
(127)
454
(182)
272
(109)
163
Balance sheet
Current assets
Fixed assets
At cost
Depreciation
Net fixed assets
Total assets
80
150
(524)
165
(609)
182
(702)
200
1,070
(300)
770
1,000
1,100
(409)
1,509
1,149
1,210
(524)
1,734
1,306
1,331
(651)
1,982
1,479
Current liabilities
Debt
Stock
80
320
450
150
1,000
88
320
450
291
1,149
97
320
450
439
1,306
106
320
450
603
1,479
Year
Profit after tax
Free cash flow
235
109
(15)
8
(30)
19
11
336
247
116
(17)
9
(110)
19
27
292
272
127
(18)
10
(121)
19
31
321
Valuing the firm

Year
FCF
Terminal value
Total
NPV of row 61
Enterprise value
Equity value
20%
0
336
292
321
336
292
321
2,710 #NAME?
80
2,790
-320
2,470

Net year 0 debt
Equity value
2,710
-240 #NAME?
2,470
Valuing the firm--using half-year discounting

Year
FCF
Terminal value
Total
NPV of row 81
Enterprise value
Equity value
20%
0
336
292
321
336
292
321
3,251 #NAME?
80
3,331
-320
3,011
Growth
0%
2%
4%
6%
8%
10%
12%
14%
16%
3,011 #NAME?
1,028
1,100
1,191
1,306
1,461
1,677
2,002
2,543
3,625
4,000
3,000
2,000
1,000
0
0%
#NAME?
growth rate of sales
3,011.40
0%
2%
4%
6%
8%
10%
12%
14%
16%
WACC
10%
2,030.04
2,458.87
3,173.58
4,603.01
8,891.30
nmf
nmf
nmf
nmf
12%
1,696.78
1,970.59
2,381.29
3,065.80
4,434.82
8,541.87
nmf
nmf
nmf
14%
1,458.43
1,644.72
1,905.52
2,296.72
2,948.73
4,252.74
8,164.77
nmf
nmf
1,464
(732)
(32)
(60)
(140)
500
(200)
300
(120)
180
1,611
(805)
(32)
(69)
(154)
551
(220)
330
(132)
198
(805)
220
(917)
242
1,464
(791)
2,255
1,670
1,611
(945)
2,555
1,880
117
320
450
783
1,670
129
320
450
981
1,880
300
140
(20)
11
(133)
19
36
353
330
154
(22)
12
(146)
19
41
388
5
353
388
4,268 #NAME?
4,656
353
5
353
388
4,268 #NAME?
4,656
353
Sales Growth and Equity Value

4,000
3,000
2,000
1,000
0
0%
5%
10%
15%
20%
16%
1,279.41
1,411.68
1,588.03
1,834.92
2,205.27
2,822.51
4,056.99
7,760.42
nmf
18%
1,139.96
1,236.67
1,361.01
1,526.79
1,758.89
2,107.03
2,687.27
3,847.75
7,329.19
20%
1,028.23
1,100.37
1,190.54
1,306.48
1,461.06
1,677.48
2,002.10
2,543.14
3,625.21
22%
936.67
991.18
1,057.80
1,141.07
1,248.14
1,390.90
1,590.76
1,890.55
2,390.21
24%
860.24
901.71
951.47
1,012.28
1,088.30
1,186.04
1,316.36
1,498.80
1,772.47
26%
795.47
827.04
864.35
909.13
963.85
1,032.26
1,120.21
1,237.48
1,401.65
EXERCISE 4--ASSETS AT COST GIVEN BY A STEP FUNCTION

Sales growth
Depreciation rate
Tax rate
Year
Income statement
Sales
Costs of goods sold
Depreciation
Profit before tax
Taxes
Profit after tax
Dividends
Retained earnings
10%
15%
8%
50%
10%
10.00%
8.00%
40%
40%
0
1,000
(500)
(32)
6
(100)
374
(150)
224
(90)
135
1,100
(550)
(32)
15
(109)
425
(170)
255
(102)
153
1,210
(605)
(32)
31
(115)
489
(196)
293
(117)
176
1,331
(666)
(32)
47
(126)
554
(222)
332
(133)
199
Balance sheet
Current assets
Fixed assets
At cost
Depreciation
Net fixed assets
Total assets
80
150
304
165
479
182
688
200
1,070
(300)
770
1,000
1,100
(409)
692
1,161
1,209
(524)
685
1,346
1,318
(650)
668
1,555
Current liabilities
Debt
Stock
80
320
450
150
1,000
88
320
450
303
1,161
97
320
450
479
1,346
106
320
450
678
1,555
Year
Profit after tax
Free cash flow
255
109
(15)
8
(30)
19
(9)
336
293
115
(17)
9
(109)
19
(19)
292
332
126
(18)
10
(109)
19
(28)
332
Valuing the firm

Year
FCF
Terminal value
Total
NPV of row 61
Enterprise value
Equity value
20%
0
336
292
332
336
292
332
2,858 <-- =NPV(B56,C61:G61)

80
2,938
-320
2,618

Net year 0 debt
Equity value
2,858
-240 <-- =-B37+B28
2,618

Year
FCF
Terminal value
Total
NPV of row 81
Enterprise value
Equity value
20%
0
336
292
332
336
292
332
3,430 <-- =NPV(B76,C81:G81)*(1+B76)

80
3,510
-320
3,190
EP FUNCTION
1,464
(732)
(32)
65
(137)
627
(251)
376
(151)
226
1,611
(805)
(32)
85
(149)
710
(284)
426
(170)
255
928
220
1,205
242
1,431
(788)
644
1,791
1,548
(937)
612
2,058
117
320
450
904
1,791
129
320
450
1,160
2,058
376
137
(20)
11
(113)
19
(39)
372
426
149
(22)
12
(117)
19
(51)
415
5
372
372
415
4,569
4,984
5
372
372
415
4,569
4,984
#NAME?
<-- =G59*(1+B3)/(B56-B3)
<-- =G72*(1+B3)/(B69-B3)
EXERCISE 5--MODELING DIVIDENDS ON A PER-SHARE BASIS

Sales growth
Depreciation rate
Interest paid on cash and marketable securities
Tax rate
Year 1 dividend per share
Number of shares
Dividend annual growth rate
Year
Income statement
Sales
Costs of goods sold
Interest earned on cash and marketable securities
Depreciation
Profit before tax
Taxes
Profit after tax
Dividends
Retained earnings
20%
20%
8%
80%
50%
10%
10.00%
8.00%
40%
0.15
1,000
12%
0
1,000
1,200
(600)
(40)
4
(124)
439
(176)
264
(150)
114
1,440
(720)
(43)
0
(156)
521
(209)
313
(168)
145
1,728
(864)
(51)
(194)
619
(248)
371
(188)
183
Balance sheet
Current assets
Fixed assets
At cost
Depreciation
Net fixed assets
Total assets
80
200
10
240
288
346
1,100
(300)
800
1,080
1,384
(424)
960
1,210
1,732
(580)
1,152
1,440
2,157
(774)
1,382
1,728
Current liabilities
Debt
Stock
80
400
450
150
1,080
96
400
450
264
1,210
115
466
450
408
1,440
138
548
450
592
1,728
Year
Profit after tax
264
124
(40)
16
(284)
24
313
156
(48)
19
(348)
26
371
194
(58)
23
(425)
30
Subtract after-tax interest on cash and mkt. securities

Free cash flow
(2)
101
Part b:
Dividend growth rate
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
(0)
118
0
137
Table: Debt/Equity (book values) ratio as a function of

Year 1
Year 2
Year 3
0.547
0.543
0.526
0.547
0.511
0.445
0.547
0.516
0.457
0.547
0.521
0.470
0.547
0.527
0.484
0.547
0.532
0.497
0.547
0.538
0.512
0.547
0.543
0.526
0.547
0.549
0.542
0.547
0.555
0.557
0.547
0.560
0.574
SHARE BASIS
2,074
(1,037)
(59)
(242)
736
(294)
442
(211)
231
2,488
(1,244)
(68)
(299)
877
(351)
526
(236)
290
415
498
2,675
(1,016)
1,659
2,074
3,306
(1,315)
1,991
2,488
166
635
450
822
2,074
199
727
450
1,113
2,488
442
242
(69)
28
(518)
36
526
299
(83)
33
(631)
41
#NAME?
0
159
0
186
book values) ratio as a function of dividend growth rate

Year 4
Year 5
0.499
0.465
#NAME?
0.365
0.283
0.384
0.308
0.405
0.334
0.426
0.363
0.449
0.394
0.474
0.428
0.499
0.465
0.527
0.506
0.556
0.550
0.587
0.599
EXERCISE 6--minimum cash balances

Sales growth
Depreciation rate
Tax rate
Year
Income statement
Sales
Costs of goods sold
Depreciation
Profit before tax
Taxes
Profit after tax
Dividends
Retained earnings
20%
20%
8%
80%
50%
10%
10.00%
8.00%
40%
50%
<-- Increased from 10%

1,000
(500)
(40)
6
(100)
366
(147)
220
(110)
110
1,200
(600)
(40)
4
(124)
440
(176)
264
(132)
132
1,440
(720)
(43)
2
(156)
523
(209)
314
(157)
157
1,728
(864)
(50)
2
(194)
622
(249)
373
(186)
186
Balance sheet
Current assets
Fixed assets
At cost
Depreciation
Net fixed assets
Total assets
80
200
28
240
25
288
25
346
1,100
(300)
800
1,080
1,384
(424)
960
1,228
1,732
(580)
1,152
1,465
2,157
(774)
1,382
1,753
Current liabilities
Debt
Stock
80
400
450
150
1,080
96
400
450
282
1,228
115
461
450
439
1,465
138
539
450
625
1,753
Year
Profit after tax
Free cash flow
264
124
(40)
16
(284)
24
(3)
101
314
156
(48)
19
(348)
26
(1)
118
373
194
(58)
23
(425)
30
(1)
137
2,074
(1,037)
(59)
2
(242)
738
(295)
443
(222)
222
2,488
(1,244)
(69)
2
(299)
878
(351)
527
(263)
263
25
415
25
498
2,675
(1,016)
1,659
2,099
3,306
(1,315)
1,991
2,513
166
636
450
847
2,099
199
754
450
1,110
2,513
443
242
(69)
28
(518)
35
(1)
159
527
299
(83)
33
(631)
42
(1)
186
#NAME?
#NAME?
EXERCISE 7--TERMINAL VALUE = DEBT + EQUITY AT BOOK VALUE

Sales growth
Depreciation rate
Tax rate
Year
Income statement
Sales
Costs of goods sold
Depreciation
Profit before tax
Taxes
Profit after tax
Dividends
Retained earnings
10%
15%
8%
77%
50%
10%
10.00%
8.00%
40%
40%
0
1,000
(500)
(32)
6
(100)
374
(150)
225
(90)
135
1,100
(550)
(32)
9
(117)
410
(164)
246
(98)
148
1,210
(605)
(32)
14
(137)
450
(180)
270
(108)
162
1,331
(666)
(32)
20
(161)
492
(197)
295
(118)
177
Balance sheet
Current assets
Fixed assets
At cost
Depreciation
Net fixed assets
Total assets
80
150
144
165
213
182
289
200
1,070
(300)
770
1,000
1,264
(417)
847
1,156
1,486
(554)
932
1,326
1,740
(715)
1,025
1,513
Current liabilities
Debt
Stock
80
320
450
150
1,000
88
320
450
298
1,156
97
320
450
460
1,326
106
320
450
637
1,513
Year
Profit after tax
Free cash flow
246
117
(15)
8
(194)
19
(5)
176
270
137
(17)
9
(222)
19
(9)
188
295
161
(18)
10
(254)
19
(12)
201
Valuing the firm

Year
FCF
Terminal value
Total
NPV of row 61
Enterprise value
Equity value
20%
0
176
188
201
176
188
201
1,317 #NAME?
80
1,397
-320
1,077

Net year 0 debt
Equity value
1,317
-240 #NAME?
1,077
Valuing the firm--using mid-year discounting

Year
FCF
Terminal value
Total
NPV of row 81
Enterprise value
Equity value
20%
0
176
188
201
176
188
201
1,580 <-- =NPV(B76,C81:G81)*(1+B76)

80
1,660
-320
1,340
Growth
0%
2%
4%
6%
8%
10%
12%
14%
16%
1,340 #NAME?
1,028
1,100
1,191
1,306
1,461
1,677
2,002
2,543
3,625
4,000
3,500
3,000
2,500
2,000
1,500
1,000
#NAME?
growth rate of sales
1,340.03
0%
2%
4%
6%
8%
10%
12%
14%
16%
WACC
10%
2,030.04
2,458.87
3,173.58
4,603.01
8,891.30
nmf
nmf
nmf
nmf
12%
1,696.78
1,970.59
2,381.29
3,065.80
4,434.82
8,541.87
nmf
nmf
nmf
14%
1,458.43
1,644.72
1,905.52
2,296.72
2,948.73
4,252.74
8,164.77
nmf
nmf
AT BOOK VALUE
1,464
(732)
(32)
26
(189)
538
(215)
323
(129)
194
1,611
(805)
(32)
33
(220)
587
(235)
352
(141)
211
371
220
459
242
2,031
(904)
1,127
1,718
2,364
(1,124)
1,240
1,941
117
320
450
830
1,718
129
320
450
1,042
1,941
323
189
(20)
11
(291)
19
(16)
214
352
220
(22)
12
(333)
19
(20)
228
5
214
228
1,812
2,040
214
5
214
228
1,812
2,040
214
4,000
#NAME?
#NAME?
Sales Growth and Equity Value
3,500
3,000
2,500
2,000
1,500
1,000
500
0
0%
2%
4%
6%
8%
10% 12% 14% 16%
0%
16%
1,279.41
1,411.68
1,588.03
1,834.92
2,205.27
2,822.51
4,056.99
7,760.42
nmf
2%
4%
18%
1,139.96
1,236.67
1,361.01
1,526.79
1,758.89
2,107.03
2,687.27
3,847.75
7,329.19
6%
8%
10% 12% 14% 16%
20%
1,028.23
1,100.37
1,190.54
1,306.48
1,461.06
1,677.48
2,002.10
2,543.14
3,625.21
22%
936.67
991.18
1,057.80
1,141.07
1,248.14
1,390.90
1,590.76
1,890.55
2,390.21
24%
860.24
901.71
951.47
1,012.28
1,088.30
1,186.04
1,316.36
1,498.80
1,772.47
26%
795.47
827.04
864.35
909.13
963.85
1,032.26
1,120.21
1,237.48
1,401.65
EXERCISE 8--THE EBITDA CALCULATIONS START IN ROW 53

Sales growth
Depreciation rate
Tax rate
Year
Income statement
Sales
Costs of goods sold
Depreciation
Profit before tax
Taxes
Profit after tax
Dividends
Retained earnings
10%
15%
8%
77%
50%
10%
10.00%
8.00%
40%
40%
0
1,000
(500)
(32)
6
(100)
374
(150)
225
(90)
135
1,100
(550)
(32)
9
(117)
410
(164)
246
(98)
148
1,210
(605)
(32)
14
(137)
450
(180)
270
(108)
162
1,331
(666)
(32)
20
(161)
492
(197)
295
(118)
177
Balance sheet
Current assets
Fixed assets
At cost
Depreciation
Net fixed assets
Total assets
80
150
144
165
213
182
289
200
1,070
(300)
770
1,000
1,264
(417)
847
1,156
1,486
(554)
932
1,326
1,740
(715)
1,025
1,513
Current liabilities
Debt
Stock
80
320
450
150
1,000
88
320
450
298
1,156
97
320
450
460
1,326
106
320
450
637
1,513
Year
Profit after tax
Free cash flow
246
117
(15)
8
(194)
19
(5)
176
270
137
(17)
9
(222)
19
(9)
188
295
161
(18)
10
(254)
19
(12)
201
EBITDA Calculation
Profit before taxes
Add back net interest
EBITDA
410
117
23
550
450
137
18
605
492
161
12
666
Valuing the firm

EBITDA multiple for terminal value
Year
FCF
Terminal value
Total
NPV of row 68
Enterprise value
Equity value
20%
6
0
176
188
201
176
188
201
2,530 #NAME?
80
2,610
-320
2,290

Net year 0 debt
Equity value
2,530
-240 #NAME?
2,290

Weighted average cost of capital (WACC)
EBITDA multiple for terminal value
Year
FCF
Terminal value
Total
NPV of row 89
Enterprise value
Equity value
20%
6
0
176
188
201
176
188
201
3,036 #NAME?
80
3,116
-320
2,796
growth
6
7
8
9
2,796 #NAME?
2,796
3,185
3,573
3,961
EBITDA Multiple and

8,000
10
11
12
13
14
8,000
4,350
4,738
5,126
5,515
5,903
6,000
4,000
2,000
0
6
#NAME?
Data table of equity value as function of

EBITDA Multiple
2,796
6
7
8
9
10
11
12
13
14
WACC
10%
3,890
4,440
4,990
5,540
6,090
6,640
7,190
7,740
8,290
12%
3,632
4,144
4,656
5,167
5,679
6,191
6,703
7,214
7,726
14%
3,396
3,873
4,350
4,826
5,303
5,780
6,257
6,733
7,210
RT IN ROW 53
1,464
(732)
(32)
26
(189)
538
(215)
323
(129)
194
1,611
(805)
(32)
33
(220)
587
(235)
352
(141)
211
371
220
459
242
2,031
(904)
1,127
1,718
2,364
(1,124)
1,240
1,941
117
320
450
830
1,718
129
320
450
1,042
1,941
323
189
(20)
11
(291)
19
(16)
214
352
220
(22)
12
(333)
19
(20)
228
538
189
6
732
587
220
(1)
805
5
214
214
228
4,832 #NAME?
5,060
5
214
214
228
4,832 #NAME?
5,060
EBITDA Multiple and Equity Value
16%
3,179
3,624
4,069
4,513
4,958
5,403
5,848
6,292
6,737
18%
2,980
3,395
3,811
4,226
4,641
5,057
5,472
5,887
6,303
10
11
20%
2,796
3,185
3,573
3,961
4,350
4,738
5,126
5,515
5,903
12
13
22%
2,627
2,991
3,354
3,718
4,081
4,445
4,808
5,172
5,535
14
24%
2,471
2,811
3,152
3,493
3,833
4,174
4,515
4,855
5,196
26%
2,326
2,646
2,965
3,285
3,604
3,924
4,243
4,563
4,882
PROJECT FINANCE
Sales growth
Depreciation rate
Tax rate
15%
15%
8%
55%
10%
10.00%
8.00%
40%
0% <-- No dividends until all the debt is paid off
Debt repayment table (essentially a loan table from Chapter 1): The principal amounts are
entered into the balance sheet and the interest is put into the profit and loss statement.
Principal
Debt
Of which:
at begin. payment
Year
of year
at end yr. Interest
1
1,000
263.80
100.00
2
836.20
263.80
83.62
3
656.03
263.80
65.60
4
457.83
263.80
45.78
5
239.82
263.80
23.98
Year
Income statement
Sales
Costs of goods sold
Depreciation
Profit before tax
Taxes
Profit after tax
Dividends
Retained earnings
1,150
(633)
(100)
(1)
(211)
206
(82)
124
124
1,323
(727)
(84)
(3)
(233)
276
(110)
166
166
1,521
(836)
(66)
(4)
(257)
358
(143)
215
215
Balance sheet
Cash and marketable securities the plug:
=C39-C28-C32
Current assets
Fixed assets
At cost
Depreciation
=B31-$B$7*(C30+B30)/2
Net fixed assets
Total assets
200
(21)
173
(47)
198
(45)
228
2,000
2,000
2,200
2,211
(211)
2,000
2,152
2,443
(443)
2,000
2,151
2,700
(700)
2,000
2,184
Current liabilities
Debt
Stock
100
1,000
1,100
2,200
92
836
1,100
124
2,152
106
656
1,100
289
2,151
122
458
1,100
504
2,184
RETURN ON EQUITY (ROE)

Year
Equity cash flow
Data table: ROE as a function of initial

equity investment
1
124
211
28
(8)
(211)
100
1
244
0
1
-1,100
15.08% #NAME?
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
2
166
233
(26)
14
(233)
84
3
240
15.08% #NAME?
11.40%
11.98%
12.70%
13.59%
14.73%
16.27%
18.42%
21.70%
27.37%
40.10%
3
215
257
(30)
16
(257)
66
4
270
ROE
FREE CASH FLOW CALCULATION

Year
Profit after tax
Free cash flow
Note that the cash flow generated by
depreciation equals the increase in fixed
assets at cost.
ROE as a Fun
50%
40%
30%
20%
10%
0%
0
all the debt is paid off
Repaid
principal
163.80
180.18
198.19
218.01
239.82
1,749
(962)
(46)
(2)
(284)
455
(182)
273
273
(5)
262
2,011
(1,106)
(24)
5
(314)
571
(229)
343
343
#NAME?
119
302
2,985
(985)
2,000
2,257
3,299
(1,299)
2,000
2,421
140
240
1,100
777
2,257
161
40
1,100
1,120
2,421
#NAME?
4
273
284
(34)
18
(284)
46
2
305
4
-
5
343
314
(39)
21
(314)
24
(5)
344
5
2,220
#NAME?
ROE as a Function of Initial

Equity Investment
Equity investment
500
1,000
1,500
2,000
PROJECT FINANCE
Uses functions IPMT and PPMT
Sales growth
Depreciation rate
Tax rate
Year
Income statement
Sales
Costs of goods sold
Depreciation
Profit before tax
Taxes
Profit after tax
Dividends
Retained earnings
15%
15%
8%
55%
10%
10.00%
8.00%
40%
0% <-- No dividends until all the debt is paid off
1,150
(633)
(100)
(1)
(211)
206
(82)
124
124
1,323
(727)
(84)
(3)
(233)
276
(110)
166
166
1,521
(836)
(66)
(4)
(257)
358
(143)
215
215
Balance sheet
Cash and marketable securities the plug:
=C39-C28-C32
Current assets
Fixed assets
At cost
Depreciation
=B31-$B$7*(C30+B30)/2
Net fixed assets
Total assets
200
(21)
173
(47)
198
(45)
228
2,000
2,000
2,200
2,211
(211)
2,000
2,152
2,443
(443)
2,000
2,151
2,700
(700)
2,000
2,184
Current liabilities
Debt
Stock
100
1,000
1,100
2,200
92
836
1,100
124
2,152
106
656
1,100
289
2,151
122
458
1,100
504
2,184
FREE CASH FLOW CALCULATION

Year
Profit after tax
1
124
211
28
(8)
(211)
100
2
166
233
(26)
14
(233)
84
3
215
257
(30)
16
(257)
66

Year
Equity cash flow
Data table: ROE as a function of initial

equity investment
1
244
0
1
-1,100
15.07% #NAME?
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
3
240
15.07% #NAME?
11.40%
11.98%
12.70%
13.59%
14.73%
16.27%
18.42%
21.70%
27.37%
40.10%
4
270
ROE

Free cash flow
Note that the cash flow generated by
depreciation equals the increase in fixed
assets at cost.
50%
40%
30%
20%
10%
0%
0
all the debt is paid off
1,749
(962)
(46)
(2)
(284)
455
(182)
273
273
(5)
262
2,011
(1,106)
(24)
3
(314)
570
(228)
342
342
78
302
2,985
(985)
2,000
2,257
3,299
(1,299)
2,000
2,380
140
240
1,100
777
2,257
161
1,100
1,119
2,380
4
273
284
(34)
18
(284)
46
#NAME?
5
342
314
(39)
21
(314)
24
#NAME?
2
305
4
-
(3)
345
5
2,219
#NAME?
ROE as a Function of Initial

Equity Investment
Equity investment
500
1,000
1,500
2,000
A
1
2
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
SUSTAINABLE DIVIDENDS--Template
Sales growth
Depreciation rate
Tax rate
Year
Income statement
Sales
Costs of goods sold
Depreciation
Profit before tax
Taxes
Profit after tax
Dividends
Retained earnings
10%
15%
8%
77%
50%
10%
10.00%
8.00%
40%
0
1,000
(500)
(32)
6
(100)
374
(150)
225
(90)
135
Balance sheet
Current assets
Fixed assets
At cost
Depreciation
Net fixed assets
Total assets
1,070
(300)
770
1,000
Current liabilities
Debt
Stock
80
320
450
150
1,000
80
150
80
80
80
320
450
320
450
320
450
plate
1
2
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
80
80
320
450
320
450
SUSTAINABLE DIVIDENDS--SOLUTION
Sales growth
Depreciation rate
Tax rate
10%
15%
8%
77%
50%
10%
10.00%
8.00%
40%
Year
Income statement
Sales
Costs of goods sold
Depreciation
Profit before tax
Taxes
Profit after tax
Dividends
Retained earnings
1,000
(500)
(32)
6
(100)
374
(150)
225
(90)
135
1,100
(550)
(32)
6
(117)
408
(163)
245
(161)
84
1,210
(605)
(32)
6
(137)
442
(177)
265
(173)
92
1,331
(666)
(32)
6
(161)
479
(191)
287
(186)
102
Balance sheet
Current assets
Fixed assets
At cost
Depreciation
Net fixed assets
Total assets
80
150
80
165
80
182
80
200
1,070
(300)
770
1,000
1,264
(417)
847
1,092
1,486
(554)
932
1,193
1,740
(715)
1,025
1,305
Current liabilities
Debt
Stock
80
320
450
150
1,000
88
320
450
234
1,092
97
320
450
326
1,193
106
320
450
428
1,305
245
84
161
265
92
173
287
102
186
CALCULATION OF MAXIMUM SUSTAINABLE DIVIDEND

Dividends
Profit after tax
- increase in retained earnings
==> maximum sustainable dividend
Year
Profit after tax
2
245
117
(15)
8
3
265
137
(17)
9
287
161
(18)
10

Free cash flow
(194)
19
(4)
176
(222)
19
(4)
188
(254)
19
(4)
201
1,464
(732)
(32)
6
(189)
518
(207)
311
(199)
112
1,611
(805)
(32)
6
(220)
560
(224)
336
(213) <-- Dividends are calculated in row 41 and following
123
80
220
80
242
2,031
(904)
1,127
1,427
2,364
(1,124)
1,240
1,562
117
320
450
540
1,427
129
320
450
663
1,562
311
112
199
336
123
213
5
311
189
(20)
11
336
220
(22)
12
(291)
19
(4)
214
(333)
19
(4)
228

Year 0 1 2 3 Income Statement

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Year 0 1 2 3 Income Statement

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Sales growth

CONSOLIDATED STATEMENT OF CASH FLOWS: RECONCILING THE CASH BAL

Cash flow from financing activities

Net increase in cash and cash equivalents

Cash flow from investing activities

ECONCILING THE CASH BALANCES

Subtract after-tax interest on cash & mkt. securities

Valuing the firm

709 <-- =NPV(B56,C61:G61)

Cash and marketable securities as negative debt

Valuing the firm--using mid-year discounting

Data table: Value as function

850 <-- =NPV(B76,C81:G81)*(1+B76)

Weighted average cost of capital

Data table: Value as function

Effect of SG&A on Equity Value

Valuing the firm

Cash and marketable securities as negative debt

Valuing the firm--using half-year discounting

growth rate of sales

Sales Growth and Equity Value

EXERCISE 4--ASSETS AT COST GIVEN BY A STEP FUNCTION

Valuing the firm

2,858 <-- =NPV(B56,C61:G61)

Cash and marketable securities as negative debt

Valuing the firm--using half-year discounting

3,430 <-- =NPV(B76,C81:G81)*(1+B76)

EXERCISE 5--MODELING DIVIDENDS ON A PER-SHARE BASIS

Subtract after-tax interest on cash and mkt. securities

Dividend growth rate

Table: Debt/Equity (book values) ratio as a function of

book values) ratio as a function of dividend growth rate

EXERCISE 6--minimum cash balances

<-- Increased from 10%

<-- Increased from 40%

EXERCISE 7--TERMINAL VALUE = DEBT + EQUITY AT BOOK VALUE

Valuing the firm

Cash and marketable securities as negative debt

Valuing the firm--using mid-year discounting

1,580 <-- =NPV(B76,C81:G81)*(1+B76)

growth rate of sales

Sales Growth and Equity Value

10% 12% 14% 16%

10% 12% 14% 16%

EXERCISE 8--THE EBITDA CALCULATIONS START IN ROW 53

Valuing the firm

Cash and marketable securities as negative debt

Valuing the firm--using half-year discounting

EBITDA Multiple and

Data table of equity value as function of

EBITDA Multiple and Equity Value

RETURN ON EQUITY (ROE)

Data table: ROE as a function of initial

FREE CASH FLOW CALCULATION

all the debt is paid off

ROE as a Function of Initial

FREE CASH FLOW CALCULATION

RETURN ON EQUITY (ROE)

Data table: ROE as a function of initial

Subtract after-tax interest on cash & mkt. securities

all the debt is paid off

ROE as a Function of Initial