1 Exhibit 3 2 Valuation Schedules: Styles Finance Co 3 December 31, 2019. Income Approach: Discounted Cash Flow Method (U.S. Reporting Unit) 4 Entity Projections Two- Unaudited Year FYE FYE FYE FYE FYE 5 SUS in thousands Audited FYE Audited FYE LTM** Pro Forma** CAGR* 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 6 12/31/2017 12/31/2018 9/30/2019 12/31/2019 1 3 4 5 7 Revenue $1,325,000 $1,100,000 $1,140,000 $1,140,000 -7.29 $1,160,000 $1,290,000 $1,340,000 $1,380,000 $1,450,000 8 Revenue growth - 17.0% 3.6% 1.89 11.29 3.99 3.096 5.19 9 Operating expenses 1,145,000 1,155,000 1,100,000 1,090,000 1,080,000 1,123,200 1,156.896 1,191,603 1,227,351 10 Operating income (EBITDA) 180,000 (55,000) 40,000 50,000 -47.39 80,000 166,800 183,104 188.397 222,649 11 Operating income growth -130.6% - 190.990 60.0% 108.596 9.8% 2.99 18.2% 12 Operating margin 13.6% -5.0% 3.596 4.4 6.996 12.99 13.796 13.796 15.496 13 Less: depreciation 33,125 27,500 28,500 28,500 29,000 32,250 33,500 34,500 36,250 14 Depreciation rate 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 15 Earnings before interest and taxes (EBIT) 146,875 (82,500) 11,500 21,500 -61.79 51,000 134,550 149,604 153,897 186,399 16 Provision for income taxes 44,063 0 420 3,333 7,905 20,855 23,189 23,854 28,892 17 Corporate income tax rate 15.50% 15.50% 15.50% 15.50% 15.50% 15.50% 15.50% 15.50% 15.50% 18 Debt-free income 102.812 (82,500) 11,080 18,168 43,095 113,695 126,415 130,043 157,507 19 Debt-free net income growth - 180.29 -122.09 137.296 163.89 11.2% 2.99 21.1% 20 Debt-free net margin -7.5% 0.97% 1.6% 3.79 8.8% 9.49 9.490 10.9% 21 Cash flow adjustments: add/(deduct) 22 Plus: depreciation 33,125 27,500 28,500 28,500 29,000 32,250 33,500 34,500 36,250 23 Less: capital expenditures (30,000) (25,000) (30,000) (30,000) (25,000) (25,000) (20,000) (25,000) (36,250) 24 Less: incremental working capital (4,000) (4,000) (5,000) (5,000) 0 0 0 0 0 25 Incremental working capital rate 13.3% 16.0% 16.7% 16.7% 0.00% 0.00% 0.00% 0.00% 0.00% 26 Adjusted cash flows $101,937 (584,000) $4.580 $11,668 -71.0% $47.095 $120,945 $139,915 $139,543 $157,507 27 Present value of discrete cash flows**** WACC 9.3% $45,052 $105.875 $112,084 $102.296 $105,662 28 29 Total present value of discrete cash flows $425,917 30 Present value of terminal value 1,088,324 Terminal*** 31 Business enterprise value 1,514,241 $162,232 32 Less: interest-bearing debt 300,000 Capitalization multiple 10 33 Equity value $1,214.241 Terminal value 1,622,324 34 Equity value (rounded) $1,210,000 Long-term growth rate 3.00% 35 1) Exhibit 3: SFC's discounted cash flow analysis - SFC calculates weighted average cost of capital (WACC) and uses that value as the discount rate in their DCF model. WACC is a key input to SFC's DCF model. Required: List 4 other key inputs to SFC's DCF model. In a couple of sentences, how would you test each input for reasonableness? Key Input How would you test each? Required: Determine if calculations in Exhibit 3 from rows 26-35 (i.e., you do not need to test rows 7-25) are accurate. List any inaccuracies you find and what affect any corrections would have on the overall analysis (i.e., the final assessment in Exhibit 2). Add rows to the chart below as necessary. If there are no corrections, note "no corrections in the chart. Cell # SFC's value Correct value Explanation & effect on overall analysis of a corrections 1 Exhibit 3 2 Valuation Schedules: Styles Finance Co 3 December 31, 2019. Income Approach: Discounted Cash Flow Method (U.S. Reporting Unit) 4 Entity Projections Two- Unaudited Year FYE FYE FYE FYE FYE 5 SUS in thousands Audited FYE Audited FYE LTM** Pro Forma** CAGR* 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 6 12/31/2017 12/31/2018 9/30/2019 12/31/2019 1 3 4 5 7 Revenue $1,325,000 $1,100,000 $1,140,000 $1,140,000 -7.29 $1,160,000 $1,290,000 $1,340,000 $1,380,000 $1,450,000 8 Revenue growth - 17.0% 3.6% 1.89 11.29 3.99 3.096 5.19 9 Operating expenses 1,145,000 1,155,000 1,100,000 1,090,000 1,080,000 1,123,200 1,156.896 1,191,603 1,227,351 10 Operating income (EBITDA) 180,000 (55,000) 40,000 50,000 -47.39 80,000 166,800 183,104 188.397 222,649 11 Operating income growth -130.6% - 190.990 60.0% 108.596 9.8% 2.99 18.2% 12 Operating margin 13.6% -5.0% 3.596 4.4 6.996 12.99 13.796 13.796 15.496 13 Less: depreciation 33,125 27,500 28,500 28,500 29,000 32,250 33,500 34,500 36,250 14 Depreciation rate 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 15 Earnings before interest and taxes (EBIT) 146,875 (82,500) 11,500 21,500 -61.79 51,000 134,550 149,604 153,897 186,399 16 Provision for income taxes 44,063 0 420 3,333 7,905 20,855 23,189 23,854 28,892 17 Corporate income tax rate 15.50% 15.50% 15.50% 15.50% 15.50% 15.50% 15.50% 15.50% 15.50% 18 Debt-free income 102.812 (82,500) 11,080 18,168 43,095 113,695 126,415 130,043 157,507 19 Debt-free net income growth - 180.29 -122.09 137.296 163.89 11.2% 2.99 21.1% 20 Debt-free net margin -7.5% 0.97% 1.6% 3.79 8.8% 9.49 9.490 10.9% 21 Cash flow adjustments: add/(deduct) 22 Plus: depreciation 33,125 27,500 28,500 28,500 29,000 32,250 33,500 34,500 36,250 23 Less: capital expenditures (30,000) (25,000) (30,000) (30,000) (25,000) (25,000) (20,000) (25,000) (36,250) 24 Less: incremental working capital (4,000) (4,000) (5,000) (5,000) 0 0 0 0 0 25 Incremental working capital rate 13.3% 16.0% 16.7% 16.7% 0.00% 0.00% 0.00% 0.00% 0.00% 26 Adjusted cash flows $101,937 (584,000) $4.580 $11,668 -71.0% $47.095 $120,945 $139,915 $139,543 $157,507 27 Present value of discrete cash flows**** WACC 9.3% $45,052 $105.875 $112,084 $102.296 $105,662 28 29 Total present value of discrete cash flows $425,917 30 Present value of terminal value 1,088,324 Terminal*** 31 Business enterprise value 1,514,241 $162,232 32 Less: interest-bearing debt 300,000 Capitalization multiple 10 33 Equity value $1,214.241 Terminal value 1,622,324 34 Equity value (rounded) $1,210,000 Long-term growth rate 3.00% 35 1) Exhibit 3: SFC's discounted cash flow analysis - SFC calculates weighted average cost of capital (WACC) and uses that value as the discount rate in their DCF model. WACC is a key input to SFC's DCF model. Required: List 4 other key inputs to SFC's DCF model. In a couple of sentences, how would you test each input for reasonableness? Key Input How would you test each? Required: Determine if calculations in Exhibit 3 from rows 26-35 (i.e., you do not need to test rows 7-25) are accurate. List any inaccuracies you find and what affect any corrections would have on the overall analysis (i.e., the final assessment in Exhibit 2). Add rows to the chart below as necessary. If there are no corrections, note "no corrections in the chart. Cell # SFC's value Correct value Explanation & effect on overall analysis of a corrections