Calculate the Intrinsic Value of Google You will use the two-stage company-level Discounted Cash Flow (DCF) valuation model to calculate the intrinsic value of your chosen company.

1. Calculate the Free Cash Flow based on most recent fiscal year data:
   • Estimate the free cash flows (FCF) available to the firm. To do this you can use the below formula:

FCF = Cash Flow from Operations - Capital Expenditures + Interest * (1 - Tax Rate)

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.
2. 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%)