AN EXERCISE IN ESTABLISHING CASH FLOW VALUATIONS Fact Pattern: EBITDA (pre-tax cash flow from operations) Depreciation and Amortization (non-cash expenses) Interest Expense Income Taxes Forecasted annual Capital Expenditures Forecasted annual increases in Net Working Capital Forecasted annual increases in long-term debt Risk-free rate of return Market risk-premium (S&P 500) Interest Rate on Corporate long-term debt Systematic Risk coefficient (reflective of operating and financial risk) Bidder's expectations on target company's debt/capital proportion Bidder's expectations on long-term growth expectations Required: 1) Establish the respective required returns for: a: Expected Asset Return b: Expected Equity Return c: Expected Return on all Invested Capital 2) Establish the respective values for:| a: All Invested Capital (using CCF and WACC and APV) b: The Firm's Equity Capital $25,000,000 2,500,000 4,000,000 40% 3,000,000 1,800,000 2,500,000 6.00% 8.50% 8.00% 1.00 40.00% 5.00% AN EXERCISE IN ESTABLISHING CASH FLOW VALUATIONS Fact Pattern: EBITDA (pre-tax cash flow from operations) Depreciation and Amortization (non-cash expenses) Interest Expense Income Taxes Forecasted annual Capital Expenditures Forecasted annual increases in Net Working Capital Forecasted annual increases in long-term debt Risk-free rate of return Market risk-premium (S&P 500) Interest Rate on Corporate long-term debt Systematic Risk coefficient (reflective of operating and financial risk) Bidder's expectations on target company's debt/capital proportion Bidder's expectations on long-term growth expectations Required: 1) Establish the respective required returns for: a: Expected Asset Return b: Expected Equity Return c: Expected Return on all Invested Capital 2) Establish the respective values for:| a: All Invested Capital (using CCF and WACC and APV) b: The Firm's Equity Capital $25,000,000 2,500,000 4,000,000 40% 3,000,000 1,800,000 2,500,000 6.00% 8.50% 8.00% 1.00 40.00% 5.00%