Discounted Cash Flow Analysis 15 1 Thousand's Projected [a] FYE FYE FYE iscal Year Endin FYE FYE FYE Terminal CY-3 CY-2 CY-1 Current Year CY+1 CY-2 CY+3 Year Forecast the Income statement here to get to Net Income for CY+1, CY+2, CY+3, and Terminal Revenue $1,000 $1,200 $1,400 $1,500 $1,600 $2,000 $1,800 $1,700 Year. (Move this text box out of the way). Cost of Goods Sold 500 700 750 $800 $1,000 $900 $850 Gross Profit 500 700 750 800 1,000 850 SG&A 300 350 425 $450 $500 $450 $475 R&D 25 30 35 40 $45 $45 $50 $45 EBITDA 175 220 265 285 305 455 400 Depreciation & Amortization 25 25 25 25 25 25 25 25 EBIT 150 195 240 260 280 430 375 305 Interest Expense 0 0 0 0 EBT 150 195 240 260 280 430 375 305 Effective Tax Rate 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Income Tax Expense 78 104 112 172 150 122 Net Income $90 $117 $144 $156 $168 $258 $225 183 add back DA minus CAPEX Calculate the Net Cash Flow from Net Income. subtract increase in NWC Follow the steps on the Case Study and in the Valuation chapter. (Move this text box out of the way]. Net Cash Flow Discount Period in Yearsadd back DA minus CAPEX Calculate the Net Cash Flow from Net Income. subtract increase in NWC Follow the steps on the Case Study and in the Valuation chapter. (Move this text box out of the way). Net Cash Flow Discount Period in Years [a) Discount Factor b) Discount Rate c) Perpetual Growth Rate [d) Terminal Value Calculate Net Present Value. Follow the steps on the Case Study and in the Valuation chapter. (e) Present Value - Cash Flow/Terminal Value (Move this text box out of the way). Net Present Value Notes; [a) Reflects end-of-year discounting convention. [b) Based upon the Weighted Average Cost of Capital as reported in lbbotson's Cost of Capital Yearbook (data through June 2006) for SIC 3949 adjusted for other risks. [c) Based upon estimated long term cash flow growth rate of the economy in general (as assumed in the Case Study). [d) Terminal Value = [Terminal Year Cash Flow / [Discount Rate - Perpetual Growth Rate)) [e) Present value to end of current year. Sources: Fiscal Year Ending [FYE) CY from audited financial statements and business forecasts