Facebooks Initial Public Offering: - Calculate the discount rate, estimate future cash flows, and then use the discounted cash flow method and multiples to price Facebooks IPO. - What is the appropriate price for the Facebook IPO? Why?

(Based on Information Provided below)

Exhibit 2 Facebook Income Statement (in millions, except per share data) Year Ended December 31, 2009 2010 2011 777 S 1,974 S 3,711 S 860 427 223 115 87 90 388 280 1,955 S 493 184 144 121 942 S 1,031 S (24) 1,008 S 402 I Revenue Costs and expenses: Cost of revenue Marketing and sales Research and development General and administrative Total costs and expenses Income from operations Interest and other income (expense), net Income before provision for income tax Provision for income taxes Net income Net income attributable to participating securities Net income attributable to Class A and Class B common stockholders Earnings per share attributable to Class A and Class B common stockholders: Basic Diluted S 515 S 262 S (8 254 S 25 S 1,756 (61) 1,695 695 1,000 332 S 229 S 107 606 S 234 S 122 S 372 S 668 S S 0.12 S 0.10 S 0.34s 0.28 S 0.52 0.46 Number of Shares (millions) Class A Class B Total 32 1,075 1,020 1,020 110 1,184 1,294 1,107 Exhibit 3 Facebook Balance Sheet (in millions) December 31, 2010 2011 s 1,785 S 373 88 ASSETS Cash and cash Equivalents Marketable securities Accounts receivable Prepaid expenses and other current assets Total current assets Property and equipment, net Goodwill and intangible assets, net Other assets Total Assets 1,512 2,396 547 149 4,604 1,475 162 90 2.246 574 96 74 S 2,990 S 6,331 S LIABILITIES Accounts payable Platform partners payable Accrued expenses and other current liabilities Deferred revenue and deposits Current portion of capital lease obligations Total current liabilities Capital lease obligations, less current portion Long-term debt Other liabilities Total liabilities 29 S 75 137 42 106 63 171 296 90 279 S 899 398 389 S 117 250 72 135 S 828 S 1,432 S 615 S 615 STOCKHOLDERS' EQUITY Convertible preferred stock Common stock Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 947 (6) 606 2,684 (6) 1,606 S 4,899 2,162 S 2,990 S S 6,331 Exhibit 4 Facebook Statement of Cash Flows (in million) Year Ended December 31, 20.09 2010 2011 S 229 S 606 S 1,000 78 139 323 217 1 27 50 (51) 20 115 (115) (433) (112) (30) (174) (31) (32) (59) (209) (38) 17 12 75 20 37 16 698 s 96 27 1 1 155 49 53 1.549 S S S (33) S Cash flows from operating activities Net income Adjustments to reconcile net income to net cash: Depreciation and amortization Loss on write-off of assets Share-based compensation Tax benefit from share-based award activity Excess tax benefit from share-based award activity Changes in assets and liabilities Accounts receivable Prepaid expenses and other current assets Other assets Accounts payable Platform partners payable Accrued expenses and other current liabilities Deferred revenue and deposits Other liabilities Net cash provided by operating activities Cash flows from investing activities Purchase of property and equipment Purchase of marketable securities Maturities of marketable securities Sales of marketable securities Investments in non-marketable equity securities Acquisitions of business, net of cash acquired Change in restricted cash and deposits Net cash used in investing activities Cash flows from financing activities Net proceeds from issuance of convertible preferred stock Net proceeds from issuance of common stock Proceeds from exercise of stock options Proceeds from (repayments of long-term debt Proceeds from sale and lease-back transactions Principal payments on capital lease obligations Excess tax benefit from share-based award activity Net cash provided by financing activity Effect of exchange rate changes on cash and cash equivalents Increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period (293) S (606) (3,025) 516 113 (3) (22) (9) 6 (324) S (3,023) 3 (32) (62) S S S 200 500 9 6 250 31 (48) 51 243 (90) 115 998 28 (250) 170 (181) 433 1.198 3 (273) 1.785 1.512 S S S S s 336 S 297 S 633 S 781 S (3) 1.152 S 633 S 1,785 S Exhibit 8 Comparable Company Valuation Multiples Selected Comparable Companies EV/ Revenue 12.2 6.0 Company LinkedIn Zynga Groupon Amazon Baidu Google Core Business Professional Networking Online Gaming Deal-of-the-Day Website Online Commerce Online Search Online Search EV/ EBITDA 96.8 nmf nmt 40.6 30.8 16.3 EV/Net Income 536.8 nmf nmf 125.2 39.0 22.0 EV/EBIT 278.7 nmf nmf 91.7 34.1 18,2 Price / Earnings 536.8 nmf nmf 124.8 38.7 21.6 Market to Book 10.2 3.9 19.0 10.2 16.6 3.6 8.3 1.6 17.8 5.6 Internet and Software Services Industry Average Median 3.6 2.4 35.0 16.3 51.4 24.1 55.3 30.5 52.9 29.0 3.4 2.1 nmf not meaningful Source: 2011 Company Annual Reports and Compustat. Exhibit 10 Dual Class Ownership Structure Company IPO Date Founder/Co-founder Larry Page Founder/Co-founder Designation CEO & Director % of All Votes per Share Voting Rights for Each Class 19.2% A:B = 1:10 Google 18-Aug-04 Sergey Brin Director 19.0% A:B = 1:10 Eric P. Lefkofsky Executive Chairman of Board Beneficial Ownership in Each Share Class Class A = + Class B = 20.1% Class A = + Class B = 39.0% Class A = 20.3% Class B = 41.7% Class A = 7.3% Class B = 41.7% Class A = 6.5% Class B = 16.7% Class A = 0.0% Class B = 23.7% 28.1% A:B = 1:150 Andrew D. Mason CEO & Director 19.8% A:B = 1:150 Groupon 7-Nov-11 Bradley A. Keywell Director 10.2% A:B = 1:150 Chariman of Board 23.1% A:B = 1:10 Linkedin 16-Nov-11 Reid Hoffman (Through: Reid Hoffman and Michelle Yee Living Trust) Mark Pincus CEO & Director 35.9% A:B:C = 1:7:70 Zynga 16-Dec-11 Class A = 0.0% Class B = 13.5% Class C = 100.0% Class A Class B=59.8% CEO & Chairman 57.5% A:B = 1:10 Mark Zuckerberg Facebook 18-May-12 indicates less than 1% ownership Source: SEC Edgar (Form S-1/A and Form 424B4) Exhibit 11 Selected Financial Ratios Sales growth Tax rate Net working capital ((CA-Marketable securitis)-CL) 2010 154% 40% 1,857 2011 88% 41% 1,309 Liquidity Current ratio (CA/CL) Cash ratio (Cash/CL) 5.77 4.59 5.12 1.68 Profitability Return on capital (NOPAT/Total capital) Return on equity (Net earnings/Shareholder equity) 25% 28% 20% 20% Margins Gross margin (Gross profit/Sales) Depreciation/Sales Depreciation/PP&E Operating margin (EBIT/Sales) EBITDA margin (EBITDA/Sales) Profit margin (NI/Sales) 75% 7% 24% 51% 58% 31% 77% 9% 22% 46% 54% 27% Turnover PP&E turnover (Sales/PP&E) Receivable turnover (Sales/AR) Total asset turnover (Sales/TA) 3.44 5.29 0.66 2.52 6.78 0.59 Exhibit 12 Financial Market Rates, May 2012 Treasury Bill, 90 Day Treasury Bond, 10 Year Treasury Bond, 30 Year 0.09% 1.70% 2.81% Beta: Closest Industry Match - Google All Technology Firms New IPO Subjective Adjustment to Beta Estimate of Beta for Facebook 1.2 1.0 0.5 1.5 Market Risk Premium 5.00% Source: Yahoo Finance and Casewriters Estimates Exhibit 2 Facebook Income Statement (in millions, except per share data) Year Ended December 31, 2009 2010 2011 777 S 1,974 S 3,711 S 860 427 223 115 87 90 388 280 1,955 S 493 184 144 121 942 S 1,031 S (24) 1,008 S 402 I Revenue Costs and expenses: Cost of revenue Marketing and sales Research and development General and administrative Total costs and expenses Income from operations Interest and other income (expense), net Income before provision for income tax Provision for income taxes Net income Net income attributable to participating securities Net income attributable to Class A and Class B common stockholders Earnings per share attributable to Class A and Class B common stockholders: Basic Diluted S 515 S 262 S (8 254 S 25 S 1,756 (61) 1,695 695 1,000 332 S 229 S 107 606 S 234 S 122 S 372 S 668 S S 0.12 S 0.10 S 0.34s 0.28 S 0.52 0.46 Number of Shares (millions) Class A Class B Total 32 1,075 1,020 1,020 110 1,184 1,294 1,107 Exhibit 3 Facebook Balance Sheet (in millions) December 31, 2010 2011 s 1,785 S 373 88 ASSETS Cash and cash Equivalents Marketable securities Accounts receivable Prepaid expenses and other current assets Total current assets Property and equipment, net Goodwill and intangible assets, net Other assets Total Assets 1,512 2,396 547 149 4,604 1,475 162 90 2.246 574 96 74 S 2,990 S 6,331 S LIABILITIES Accounts payable Platform partners payable Accrued expenses and other current liabilities Deferred revenue and deposits Current portion of capital lease obligations Total current liabilities Capital lease obligations, less current portion Long-term debt Other liabilities Total liabilities 29 S 75 137 42 106 63 171 296 90 279 S 899 398 389 S 117 250 72 135 S 828 S 1,432 S 615 S 615 STOCKHOLDERS' EQUITY Convertible preferred stock Common stock Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 947 (6) 606 2,684 (6) 1,606 S 4,899 2,162 S 2,990 S S 6,331 Exhibit 4 Facebook Statement of Cash Flows (in million) Year Ended December 31, 20.09 2010 2011 S 229 S 606 S 1,000 78 139 323 217 1 27 50 (51) 20 115 (115) (433) (112) (30) (174) (31) (32) (59) (209) (38) 17 12 75 20 37 16 698 s 96 27 1 1 155 49 53 1.549 S S S (33) S Cash flows from operating activities Net income Adjustments to reconcile net income to net cash: Depreciation and amortization Loss on write-off of assets Share-based compensation Tax benefit from share-based award activity Excess tax benefit from share-based award activity Changes in assets and liabilities Accounts receivable Prepaid expenses and other current assets Other assets Accounts payable Platform partners payable Accrued expenses and other current liabilities Deferred revenue and deposits Other liabilities Net cash provided by operating activities Cash flows from investing activities Purchase of property and equipment Purchase of marketable securities Maturities of marketable securities Sales of marketable securities Investments in non-marketable equity securities Acquisitions of business, net of cash acquired Change in restricted cash and deposits Net cash used in investing activities Cash flows from financing activities Net proceeds from issuance of convertible preferred stock Net proceeds from issuance of common stock Proceeds from exercise of stock options Proceeds from (repayments of long-term debt Proceeds from sale and lease-back transactions Principal payments on capital lease obligations Excess tax benefit from share-based award activity Net cash provided by financing activity Effect of exchange rate changes on cash and cash equivalents Increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period (293) S (606) (3,025) 516 113 (3) (22) (9) 6 (324) S (3,023) 3 (32) (62) S S S 200 500 9 6 250 31 (48) 51 243 (90) 115 998 28 (250) 170 (181) 433 1.198 3 (273) 1.785 1.512 S S S S s 336 S 297 S 633 S 781 S (3) 1.152 S 633 S 1,785 S Exhibit 8 Comparable Company Valuation Multiples Selected Comparable Companies EV/ Revenue 12.2 6.0 Company LinkedIn Zynga Groupon Amazon Baidu Google Core Business Professional Networking Online Gaming Deal-of-the-Day Website Online Commerce Online Search Online Search EV/ EBITDA 96.8 nmf nmt 40.6 30.8 16.3 EV/Net Income 536.8 nmf nmf 125.2 39.0 22.0 EV/EBIT 278.7 nmf nmf 91.7 34.1 18,2 Price / Earnings 536.8 nmf nmf 124.8 38.7 21.6 Market to Book 10.2 3.9 19.0 10.2 16.6 3.6 8.3 1.6 17.8 5.6 Internet and Software Services Industry Average Median 3.6 2.4 35.0 16.3 51.4 24.1 55.3 30.5 52.9 29.0 3.4 2.1 nmf not meaningful Source: 2011 Company Annual Reports and Compustat. Exhibit 10 Dual Class Ownership Structure Company IPO Date Founder/Co-founder Larry Page Founder/Co-founder Designation CEO & Director % of All Votes per Share Voting Rights for Each Class 19.2% A:B = 1:10 Google 18-Aug-04 Sergey Brin Director 19.0% A:B = 1:10 Eric P. Lefkofsky Executive Chairman of Board Beneficial Ownership in Each Share Class Class A = + Class B = 20.1% Class A = + Class B = 39.0% Class A = 20.3% Class B = 41.7% Class A = 7.3% Class B = 41.7% Class A = 6.5% Class B = 16.7% Class A = 0.0% Class B = 23.7% 28.1% A:B = 1:150 Andrew D. Mason CEO & Director 19.8% A:B = 1:150 Groupon 7-Nov-11 Bradley A. Keywell Director 10.2% A:B = 1:150 Chariman of Board 23.1% A:B = 1:10 Linkedin 16-Nov-11 Reid Hoffman (Through: Reid Hoffman and Michelle Yee Living Trust) Mark Pincus CEO & Director 35.9% A:B:C = 1:7:70 Zynga 16-Dec-11 Class A = 0.0% Class B = 13.5% Class C = 100.0% Class A Class B=59.8% CEO & Chairman 57.5% A:B = 1:10 Mark Zuckerberg Facebook 18-May-12 indicates less than 1% ownership Source: SEC Edgar (Form S-1/A and Form 424B4) Exhibit 11 Selected Financial Ratios Sales growth Tax rate Net working capital ((CA-Marketable securitis)-CL) 2010 154% 40% 1,857 2011 88% 41% 1,309 Liquidity Current ratio (CA/CL) Cash ratio (Cash/CL) 5.77 4.59 5.12 1.68 Profitability Return on capital (NOPAT/Total capital) Return on equity (Net earnings/Shareholder equity) 25% 28% 20% 20% Margins Gross margin (Gross profit/Sales) Depreciation/Sales Depreciation/PP&E Operating margin (EBIT/Sales) EBITDA margin (EBITDA/Sales) Profit margin (NI/Sales) 75% 7% 24% 51% 58% 31% 77% 9% 22% 46% 54% 27% Turnover PP&E turnover (Sales/PP&E) Receivable turnover (Sales/AR) Total asset turnover (Sales/TA) 3.44 5.29 0.66 2.52 6.78 0.59 Exhibit 12 Financial Market Rates, May 2012 Treasury Bill, 90 Day Treasury Bond, 10 Year Treasury Bond, 30 Year 0.09% 1.70% 2.81% Beta: Closest Industry Match - Google All Technology Firms New IPO Subjective Adjustment to Beta Estimate of Beta for Facebook 1.2 1.0 0.5 1.5 Market Risk Premium 5.00% Source: Yahoo Finance and Casewriters Estimates