Discounted cash flow valuation: Using the Discounted Cash Flow method and information from Exhibit 10, estimate the value of FVC. First, calculate the free cash flow to FVC each year from 2008 to 2012. Second, discount the cash flows to 2007. Assume: discount rate r = 8%, growth rate for the steady period starting 2012 g = 4.5%. Clearly state your assumptions if any

Synergy valuation: FVC expects to realize from the transaction pre-tax cost synergies of $2 million in the first year and $4 million each year afterwards. What is the value of FVC using the Discounted Cash Flow method in question 5 taking into account the cost synergies realized from the transaction?

UVA-F-1573 -14- Exhibit 10 FLINDER VALVES AND CONTROLS INC. Forecast of Financial Statements for Flinders Control and Valve for Years Ended December 31, 2008-12 (dollars in thousands) 2010 Actual 2007 $49,364 _37,044 12,320 2,936 228 9,612 4,037 S5,575 Sales Cost of goods sold Gross profit administrative Other income, net Income before taxes Taxes Net income Projected 2008 2009 $59,600 $66,000 $73,200 43,816 48,750 IN 54,104 15,784 |17,250 19,096 3,612 4,564 240 264 288 12,412 13,390 14,820 4,965 5,356 5,928 $7.447 $8.034 $8.892 4,124 2011 $81,200 59.958 21,242 5,052 320 16,510 6,604 $9.906 2012 $90,000 66,200 23,800 5,692 352 18,460 7,384 $11.076 $1,508 $1,660 $2,012 Depreciation $1,828 $2,212 $2,432 Net PPE Net Working capital $18,268 $16,840 $22,056 $20,331 $24,424 $22,515 $27,088 $24,971 $30,049 $27,700 $33,306 $30,702 Source: FVC Analysis. UVA-F-1573 -14- Exhibit 10 FLINDER VALVES AND CONTROLS INC. Forecast of Financial Statements for Flinders Control and Valve for Years Ended December 31, 2008-12 (dollars in thousands) 2010 Actual 2007 $49,364 _37,044 12,320 2,936 228 9,612 4,037 S5,575 Sales Cost of goods sold Gross profit administrative Other income, net Income before taxes Taxes Net income Projected 2008 2009 $59,600 $66,000 $73,200 43,816 48,750 IN 54,104 15,784 |17,250 19,096 3,612 4,564 240 264 288 12,412 13,390 14,820 4,965 5,356 5,928 $7.447 $8.034 $8.892 4,124 2011 $81,200 59.958 21,242 5,052 320 16,510 6,604 $9.906 2012 $90,000 66,200 23,800 5,692 352 18,460 7,384 $11.076 $1,508 $1,660 $2,012 Depreciation $1,828 $2,212 $2,432 Net PPE Net Working capital $18,268 $16,840 $22,056 $20,331 $24,424 $22,515 $27,088 $24,971 $30,049 $27,700 $33,306 $30,702 Source: FVC Analysis