Calculate the Intrinsic Value of Google

Cash Flow from Operations $53,971,000

CAPITAL EXPENDITURES = $24,915,000.

INTEREST = $86,000

Tax Rate: 13.66%

TTM Free Cash Flows: $29,129,252.40

WACC: 12%

1. Conduct a two-stage valuation

• You can now combine the two items above to estimate a present value of the firm. You should calculate a high-growth phase value and a terminal value.

1. High Growth Phase Value:For this phase, assume that in years 1 - 3 the Free Cash Flows are growing by 8% annually.
2. Terminal Value:For this phase assume the FCF grow at a constant growth rate of 2.5%.

• Calculate the present values of the above phases and add them together for the total present value of the company.

1. Conduct a Sensitivity Analysis:

• Vary the following inputs to the two-tier valuation model and indicate the new valuation amount and the percentage change from the above "base" case.
• Free Cash Flows

1. Increase the FCF by 10%
2. Decrease the FCF by 10%

• Terminal Growth Rate

1. Increase the Terminal Growth Rate from 2.5% to 3.5%
2. Decrease the Terminal Growth Rate from 2.5% to 1.5%

• WACC

1. Add 2% to the WACC (that is if the WACC is 7.5% make it 9.5%)
2. Subtract 2% from the WACC (that is if the WACC is 7.5% make it 5.5%)