Find factors that could explain the huge decline in market value and how they relate to the growing perpetuity formula. Show some calculations why, when built into an NPV model for investors, these "abrupt changes" in perceived cash flows being generated by the firm can have huge impacts om its market capitalization.

Exhibit 1 KRISPY KREME DOUGHNUTS, INC. Income Statements in thousands, except per-share amounts) Jan. 30, Jan. 28, 2001 Feb. 3, 2002 2000 Feb. 2, 2003 Three Months Ended Three Months Ended May 5, May 2, Aug 3, Aug. 1, 2003 2004 2003 2004 Feb. 1, 2004 Total revenues Operating expenses General and administrative expenses Depreciation and amortization expenses Arbitration award Provision for restructuring Impairment charges and closing costs 220.243 190,003 14,856 4,546 300,715 250,690 20,061 6,457 394,354 491,549 665,592 316,946 381,489 507,396 27,562 28,897 36,912 7,959 12,271 19,723 9,075 (525) 148,660 184,356 112,480 141,383 8,902 10,664 4,101 6,130 (525) 159,176 177,448 120,573 145,633 9,060 11,845 4,536 6,328 7,543 1.802 10,838 293 (1,525) Income from operations Interest income Interest expense Equity loss in joint ventures Minority interest Other expense, net 23,507 2,325 (607) (706) (716) (20) 41,887 59,817 102,086 2,980 1,966 921 (337) (1,781) (4,409) (602) (2,008) (1,836) (1,147) (2,287) (2,072) (235) (934) (13) 23,702 18,636 227 176 (866) (1,433) (694) (575) (616) (126) (25) (156) 25,007 11,840 205 226 (997) (1,366) (802) (399) (616) 267 (343) 114 54,773 Income before income taxes Provision for income taxes Discontinued operations 9,606 3,650 23,783 9,058 42,546 16,168 94,677 37,590 21,728 8,588 21,295 16,522 6,675 34,285 22,454 9,014 439 10,682 4,438 480 5,956 Net income 14,725 26,378 33,478 57,087 13,140 (24,438) 13,001 5,764 0.15 0.27 0.45 0.56 0.92 0.22 (0.38) Diluted earnings per share 0.21 0.10 54.5 58,6 59.8 39.7 60.7 Number of shares outstanding (millions) 62.1 63.6 62.1 63.4 Resulting from divestiture of Montana Mills. Data source: Company filings with the Securities and Exchange Commission (SEC). Exhibit 1 KRISPY KREME DOUGHNUTS, INC. Income Statements in thousands, except per-share amounts) Jan. 30, Jan. 28, 2001 Feb. 3, 2002 2000 Feb. 2, 2003 Three Months Ended Three Months Ended May 5, May 2, Aug 3, Aug. 1, 2003 2004 2003 2004 Feb. 1, 2004 Total revenues Operating expenses General and administrative expenses Depreciation and amortization expenses Arbitration award Provision for restructuring Impairment charges and closing costs 220.243 190,003 14,856 4,546 300,715 250,690 20,061 6,457 394,354 491,549 665,592 316,946 381,489 507,396 27,562 28,897 36,912 7,959 12,271 19,723 9,075 (525) 148,660 184,356 112,480 141,383 8,902 10,664 4,101 6,130 (525) 159,176 177,448 120,573 145,633 9,060 11,845 4,536 6,328 7,543 1.802 10,838 293 (1,525) Income from operations Interest income Interest expense Equity loss in joint ventures Minority interest Other expense, net 23,507 2,325 (607) (706) (716) (20) 41,887 59,817 102,086 2,980 1,966 921 (337) (1,781) (4,409) (602) (2,008) (1,836) (1,147) (2,287) (2,072) (235) (934) (13) 23,702 18,636 227 176 (866) (1,433) (694) (575) (616) (126) (25) (156) 25,007 11,840 205 226 (997) (1,366) (802) (399) (616) 267 (343) 114 54,773 Income before income taxes Provision for income taxes Discontinued operations 9,606 3,650 23,783 9,058 42,546 16,168 94,677 37,590 21,728 8,588 21,295 16,522 6,675 34,285 22,454 9,014 439 10,682 4,438 480 5,956 Net income 14,725 26,378 33,478 57,087 13,140 (24,438) 13,001 5,764 0.15 0.27 0.45 0.56 0.92 0.22 (0.38) Diluted earnings per share 0.21 0.10 54.5 58,6 59.8 39.7 60.7 Number of shares outstanding (millions) 62.1 63.6 62.1 63.4 Resulting from divestiture of Montana Mills. Data source: Company filings with the Securities and Exchange Commission (SEC)