A56 fx A. equal to Knight's valuation G B D E 1 Summary Income Statement and Balance Sheet 2. (Us $ millions, except per share data) 3 December 31. 4 2000 2001 2002 2003 5 Summary Income Statement (for the year) Actual Projection Projection Projection 6 Total Revenue $ 70.00 $ 105.00 $ 157.50 $ 236.25 7 Total Operating Expenses $ 30.45 $ 45.68 $ 68.51 $ 102.77 8 EBITDA $ 39.55 $ 59.32 $ 88.99 $ 133.48 9 Depreciation and Amortization $ 69.00 $ 129.00 $ 136.50 $ 144.00 10 EBIT $ (29.45) $ (69.68) $ (47.51) $ (10.52) 11 Interest Expense $ 44.10 $ 79.20 $ 87.75 $ 87.75 12 Pre-tax income $ (73.55) $ (148.88) $ (135.26) $ (98.27) 13 Income Tax Expense $ (22.07) $ (44.66) $ (40.58) $ (29.48) 14 Net Income $ (51.48) $ (104.22) $ (94.68) $ (68.79) 15 16 2000 2001 2002 2003 17 Summary Balance Sheet (year end) Actual Projection Projection Projection 18 Total Current Assets $ 113.12 $ 130.93 $ 222.07 $ 253.75 19 Net Fixed Assets $391.00 $ 662.00 $ 575.50 $ 481.50 20 Total Assets $ 504.12 $ 792.93 $ 797.57 $ 735.25 21 22 Total Current Liabilities $ 5.60 $ 8.63 $ 12.95 $ 19.42 23 Long Term Debt $490.00 $ 880.00 $ 975.00 $ 975.00 24 Total Liabilities $495.60 $ 888.63 $ 987.95 $ 994.42 25 Common Stock $ 60.00 $ 60.00 $ 60.00 $ 60.00 26 Retained Earnings $ (51.49) $ (155.70) $ (250.38) $ (319.17) 27 Total Shareholder's Equity $ 8.51 $ (95.70) $ (190.38) $ (259.17) 28 Total Liabilitites and Equity $504.11 $ 792.93 $ 797.57 $ 735.25 A B C D E F $ $ 400.00 $ 5.19 $ 50.00 $ (4.32) $ 50.00 (6.47) 15% 17% 30% 0 Dividends 1 2 Capital Expenditures 3 Changes in WC 4. 5 6 Growth at a rate of (annually) 7 Weighted Average cost of cap 8 Tax Rate 9 0 1 2 3 4 Dividend 5 Dividend Growth Rate 6 Terminal value of perpetuity divided 7 Perpetual Growth Rate 8 Required Rate of Return 9 Total Dividends O Discount Factor 1 PV 2 Stock Value 3 Year 3 Year o 2001 $ 1.85$ 2004 Year 1 2002 0.74 $ -60% Year 2 2003 0.74 $ 0% $ 1.85 66.60 8% 11% $ 1.85 $ 1.0 $ 1.85$ $ 53.17 0.74 $ 0.9 0.67 $ 0.74 $ 0.8 0.60 $ 68.45 0.7 50.05 Beth Knight, CFA, and David Royal, CFA, are independently analyzing the value of Bishop, Inc. stock. Bishop paid a dividend of $1 last year. Knight expects the dividend to grown by 10% in each of the next 3 years after which it will grow at a constant rare of 4% per year. Royal also expects temporary growth grate of 10% followed by a constant growth rate of 4%, but he expects the supernormal growth to last for only 2 years. Knight estimates that the RR on Bishop stock is 9%, but Royal believes the RR is 10%. Royal's valuation of Bishop stock is approximately: A. equal to Knight's valuation B. $5 less than knight's valuation C. $5 more than Knight's valuation