1. Strategically, do you think Mr. Saito and his partners should sell the firm at this time?

(fhe firm is expecting to grow would it he a good time to sell now or wait)

2012 6,234.1 4.041.2 2,1922 35.296 Appendix 1. Saito Solar, Profit and Loss Statement (millions of Yen, year ending June 30) Income Item 2009 2010 2011 Sales 6,833.2 6,755.7 6,345.1 COGS 4.323.7 4.298.1 4.112.0 Gross margin 2.509.5 2,457.6 2,233.1 Gros margin (%) 36.796 36.4% 35.296 Marketing & selling 1210.8 1,199.6 1,083.1 G&A expenses 586.2 570.7 560.6 EBITDA 712.5 687.3 589.4 EBITDA margin (%) 10.496 10.296 9.3% Depreciation 150.4 167.2 140.3 EBT 562.1 520.1 449.1 EBT margin (%) 8.296 7.796 7.196 Taxes 222.0 205.4 177.4 Net Income 340.1 314.7 271.7 Return on sales (9) 5.0% 4.796 4.3% Dividends 150.0 150.0 150.0 Retained earnings 190.1 164.7 121.7 1,030.2 569.0 593.0 9.5% 156.4 436.6 7.0% 172.5 264.1 4.296 150.0 114.1 2011 40.6 2,045.0 1,010.2 89.2 3.185.0 2012 140.7 2,121.3 1,065.0 95.8 3.422.8 Appendix 2. Saito Solar, Balance Sheets (millions of Yen, as of June 30) Assets 2009 2010 Cash 120.3 83.3 Accounts Receivable 1,828.0 1,895.7 Inventory 1,127.7 1,100.8 Prepaid Expenses 97.6 90.1 Current Assets 3,173.6 3,169.9 Net Fixed Assets 2.210.1 2.250.2 Total Assets 5.383.7 5,420.1 Liabilities & Net Worth 2002 2010 Accounts Payable 1,270.6 1,098.2 Accrued Expenses 143.0 187,1 Current Liabilities 1.413.6 1,285.3 Equity 3.970.1 4.134.8 Liabilities Net Worth 5,383.7 5,420.1 2.246.6 2.090.2 5.431.6 5.513.0 2011 1,001.1 174.0 1.175.1 2012 999.2 1432 1,142.4 4.256.5 4.370.6 5,431.6 5.513.0 Appendix 3. Saito Solar, Projected Profit & Loss and Cash Flows (millions of Yen, year ending June 30) Actual Projected Income Item 2012 2013 2014 2015 2016 2017 Sales 6,234.1 7,792.6 9,351.2 10,753.8 11,829.2 12,420.7 COGS 4,041.2 4.994.8 5.993.8 6,892.8 7.582.1 7.961.2 Gross margin 2,192.2 2,797.8 3,357.4 3,861.0 4,247.1 4,459.5 Gross margin (%) 35.2% 35.9% 35.9% 35.996 35.9% 35.9% Marketing & selling 1,030.2 1,202.0 1,344.2 1,504.4 1,722.9 1,875.0 G&A expenses 569.0 660.2 960.0 1.134.2 1,180.2 1.200.0 EBITDA 593.0 935.6 1,053.2 1,222.4 1,344.0 1,384.5 EBITDA margin (%) 9.5% 12.09 11.3% 11.4% 11.4% 11.1% 156.4 436.6 7.0% 174.4 761.2 9.8% 190.0 863.2 9.2% 200.0 1,022.4 9.596 220.5 1,123.5 9.5% 250.0 1,134.5 9.1% 172.5 264.1 4.296 289.3 472.0 6.1% 328.0 535.2 5.7% 388.5 633.9 5.996 426.2 696.6 5.9% 431.1 703.4 5.7% Depreciation EBT EBT margin (%) Taxes Net Income (NI) Return on sales (%) Operating Cash Flows (NI + Depreciation) Change in NWC Change in CAPEX Free Cash Flow 420.5 646.4 725.2 833.9 917.1 953.4 (170.4) (200.0) (210.0) (245.0) (260.0) (275.0) (50.0) 0 (50.0) (50.0) (50.0) (50.0) 250.1 396.4 465.2 538.9 607.1 628.4 Appendix 4. Discounting Future Cash Flows with Formulas A firm's free cash flows can be in a variety of patterns, ranging from a simple single future cash flow to a complex mixed stream of projected cash flows. Most, if not all, can be handled by one of the formulas below. Generic DCF Formula PV = CF PV = the present value of the cash flow stream CFt - the cash flow which occurs at the end of yeart = the discount rate (assumed to be constant over the project horizon)" t-the year, which ranges from one to n the last year in which a cash flow occurs denotes summation of the cash flows as t goes from 1 ton Note that discount rate, opportunity rate, required rate of return, interest rate, capitalization rate, and weighted avenage cost of capital (WACC) are terms ased interchangeably by authors and practitioners. Fortunately , simpler versions (shortcuts) of the above formula exist, induding: No Growth Perpetuity PV = CF where CF is the constant perpetual cash flow and t = the discount rate. Growing Perpetuity PV = CF P- where CF, is the cash flow at the end of year one, t = the discount rate, and g - the growth rate. Regular Annuity PV =CFC- 1 (1+r) where CF represents the steady end-of-year cash flow, r = the discount rate, and T - the number of constant cash flows. The term in brackets is defined as an annuity factor, and facilitates more tedious algebraic computation. Growing Annuity PV C 1+ g -L wherer - the discount rate, g- the growth rate, and the number of cash flows. Note that the formula above is simply the PV of a growing perpetuity "penalized" by cash flows foregone In all of these cases, cash flows are assumed to occur at the end of the year, and the formulas throughout represent discrete (vs. continuous) time versions of these cash flows. 2012 6,234.1 4.041.2 2,1922 35.296 Appendix 1. Saito Solar, Profit and Loss Statement (millions of Yen, year ending June 30) Income Item 2009 2010 2011 Sales 6,833.2 6,755.7 6,345.1 COGS 4.323.7 4.298.1 4.112.0 Gross margin 2.509.5 2,457.6 2,233.1 Gros margin (%) 36.796 36.4% 35.296 Marketing & selling 1210.8 1,199.6 1,083.1 G&A expenses 586.2 570.7 560.6 EBITDA 712.5 687.3 589.4 EBITDA margin (%) 10.496 10.296 9.3% Depreciation 150.4 167.2 140.3 EBT 562.1 520.1 449.1 EBT margin (%) 8.296 7.796 7.196 Taxes 222.0 205.4 177.4 Net Income 340.1 314.7 271.7 Return on sales (9) 5.0% 4.796 4.3% Dividends 150.0 150.0 150.0 Retained earnings 190.1 164.7 121.7 1,030.2 569.0 593.0 9.5% 156.4 436.6 7.0% 172.5 264.1 4.296 150.0 114.1 2011 40.6 2,045.0 1,010.2 89.2 3.185.0 2012 140.7 2,121.3 1,065.0 95.8 3.422.8 Appendix 2. Saito Solar, Balance Sheets (millions of Yen, as of June 30) Assets 2009 2010 Cash 120.3 83.3 Accounts Receivable 1,828.0 1,895.7 Inventory 1,127.7 1,100.8 Prepaid Expenses 97.6 90.1 Current Assets 3,173.6 3,169.9 Net Fixed Assets 2.210.1 2.250.2 Total Assets 5.383.7 5,420.1 Liabilities & Net Worth 2002 2010 Accounts Payable 1,270.6 1,098.2 Accrued Expenses 143.0 187,1 Current Liabilities 1.413.6 1,285.3 Equity 3.970.1 4.134.8 Liabilities Net Worth 5,383.7 5,420.1 2.246.6 2.090.2 5.431.6 5.513.0 2011 1,001.1 174.0 1.175.1 2012 999.2 1432 1,142.4 4.256.5 4.370.6 5,431.6 5.513.0 Appendix 3. Saito Solar, Projected Profit & Loss and Cash Flows (millions of Yen, year ending June 30) Actual Projected Income Item 2012 2013 2014 2015 2016 2017 Sales 6,234.1 7,792.6 9,351.2 10,753.8 11,829.2 12,420.7 COGS 4,041.2 4.994.8 5.993.8 6,892.8 7.582.1 7.961.2 Gross margin 2,192.2 2,797.8 3,357.4 3,861.0 4,247.1 4,459.5 Gross margin (%) 35.2% 35.9% 35.9% 35.996 35.9% 35.9% Marketing & selling 1,030.2 1,202.0 1,344.2 1,504.4 1,722.9 1,875.0 G&A expenses 569.0 660.2 960.0 1.134.2 1,180.2 1.200.0 EBITDA 593.0 935.6 1,053.2 1,222.4 1,344.0 1,384.5 EBITDA margin (%) 9.5% 12.09 11.3% 11.4% 11.4% 11.1% 156.4 436.6 7.0% 174.4 761.2 9.8% 190.0 863.2 9.2% 200.0 1,022.4 9.596 220.5 1,123.5 9.5% 250.0 1,134.5 9.1% 172.5 264.1 4.296 289.3 472.0 6.1% 328.0 535.2 5.7% 388.5 633.9 5.996 426.2 696.6 5.9% 431.1 703.4 5.7% Depreciation EBT EBT margin (%) Taxes Net Income (NI) Return on sales (%) Operating Cash Flows (NI + Depreciation) Change in NWC Change in CAPEX Free Cash Flow 420.5 646.4 725.2 833.9 917.1 953.4 (170.4) (200.0) (210.0) (245.0) (260.0) (275.0) (50.0) 0 (50.0) (50.0) (50.0) (50.0) 250.1 396.4 465.2 538.9 607.1 628.4 Appendix 4. Discounting Future Cash Flows with Formulas A firm's free cash flows can be in a variety of patterns, ranging from a simple single future cash flow to a complex mixed stream of projected cash flows. Most, if not all, can be handled by one of the formulas below. Generic DCF Formula PV = CF PV = the present value of the cash flow stream CFt - the cash flow which occurs at the end of yeart = the discount rate (assumed to be constant over the project horizon)" t-the year, which ranges from one to n the last year in which a cash flow occurs denotes summation of the cash flows as t goes from 1 ton Note that discount rate, opportunity rate, required rate of return, interest rate, capitalization rate, and weighted avenage cost of capital (WACC) are terms ased interchangeably by authors and practitioners. Fortunately , simpler versions (shortcuts) of the above formula exist, induding: No Growth Perpetuity PV = CF where CF is the constant perpetual cash flow and t = the discount rate. Growing Perpetuity PV = CF P- where CF, is the cash flow at the end of year one, t = the discount rate, and g - the growth rate. Regular Annuity PV =CFC- 1 (1+r) where CF represents the steady end-of-year cash flow, r = the discount rate, and T - the number of constant cash flows. The term in brackets is defined as an annuity factor, and facilitates more tedious algebraic computation. Growing Annuity PV C 1+ g -L wherer - the discount rate, g- the growth rate, and the number of cash flows. Note that the formula above is simply the PV of a growing perpetuity "penalized" by cash flows foregone In all of these cases, cash flows are assumed to occur at the end of the year, and the formulas throughout represent discrete (vs. continuous) time versions of these cash flows