M10-03-BasicRevenueGrowthFormula

Model10-03BasicRevenueGrowthFormula(DollarAmountsinMillionsExceptperShare)PanelA–ValueDriversR0=Baseyearrevenues$100,000Initialgrowthperiodms=Netoperatingincomemargin17.0%Ts=Taxrate38.0%gs=Growthrate4.0%ds=Depreciation4.0%Iws=Workingcapitalrequirements1.5%Ifs=Capitalexpenditures4.5%Ios=Changeinotherassetsnet1.25%ks=Costofcapital9.18%n=Numberofgrowthyears10Terminalperiodmc=Netoperatingincomemargin12.0%Tc=Taxrate38.0%gc=Growthrate3.0%dc=Depreciation4.0%Iwc=Workingcapitalrequirements1.5%Ifc=Capitalexpenditures2.5%Ioc=Changeinotherassetsnet0.1%kc=Costofcapital9.18%1+h=calculationrelationship=(1+gs)/(1+ks)0.9526PanelB–FormulaPanelC–NumericalCalculationV0=104000[0.17(1-0.38)+0.04-0.015-0.045-0.0125][1/(1+0.0918)][(((0.9526)^10)-1)/-0.0474]+100000[(1+0.04)^10][1+0.03][0.12(1-0.38)+0.04-0.015-0.025-0.001]/[(0.0918-0.03)(1+0.0918)^10]=104000(0.0729)(0.9159)(8.1139)--presentvalueofsupergrowthcashflows+100000(1.4802)(1.03)(0.0734)[(16.1812)(0.4155)]--presentvalueofterminalvalue=56344.1+75239.7=$131,584PanelD–CalculatingFirmValuePresentvalueofinitialgrowthperiodcashflows56,344$Presentvalueofterminalvalue75,240Enterpriseoperatingvalue131,584$Add:Marketablesecurities10,000Entityvalue141,584$Less:Totalinterest-bearingdebt20,000Equityvalue121,584$Numberofshares3,500Valuepershare34.74$nsccocfcwcccccnsnttstsosfswsssskgkIIIdTmggRkgIIIdTmRV)1)((])1()[1()1()1()1(])1([0100nsccocfcwcccccnsnsosfswsssskgkIIIdTmggRhhkIIIdTmRV)1)((])1()[1()1(1)1(1])1([010