Hurdle rate= 15%

1. By your calculation what is Stryker's most recent WACC? Is this the hurdle rate used by the firm, if not what rate are they using when determining their required return? Does this seem appropriate?

2. If Stryker was considering a project that cost 25 million and would produce cash flows of 5 million over the next 10 years, what NPV, and IRR would Stryker produce in their analysis? What would NPV and IRR be if calculated as described in the text?

Exhibit 1 Selected Historical & Operating Data (US$ millions except as noted) 2006 5,405.6 3,556.9 324.6 2,061.7 43.6 52.7 2005 4,871.5 3,153.0 284.7 1,853.5 48.8 15.9 2004 4,262.3 2.748.5 214.9 1,683.5 47.8 120.8 2003 3,625.3 2,310.1 183.0 1,439.9 45.4 2002 3,011.6 1,897.9 143.9 1,186.8 28.9 2001 2,602.3 1,636.8 143.8 1,000.3 38.4 2000 2.289.4 1,472.7 123.7 898.0 34.7 Net sales Gross profit RD&E expenditures G&A expenditures Intangibles amortization Purchased in-process R&D Restructuring & other special charges Operating income Other income (expense) ncome taxes 1999 2,103.7 1,113.1 105.6 816.1 33.9 1998 1,103.2 630.7 61.4 376.7 7.6 83.3 19.0 82.7 4.3 29.5 1997 980.1 582.1 57.2 336.4 7.2 1,074.3 29.5 326.1 950.1 4.5 311.0 681.5 (3.4) 238.1 641.8 (18.8) 188.6 17.2 521.1 (40.8) 151.8 0.6 453.7 (66.3) 127.4 (1.0) 417.3 (97.8) 108.4 18.9 138.6 (117.8) 7.1 181.3 11.3 69.0 Net earnings 777.7 643.6 440.0 434.4 328.5 255.2 211.1 13.7 57.5 123.6 Earnings per share, fully diluted ($) $ 1.89 $ 1.57 $ 1.08 $ 1.07 $ 0.81 $ 0.64 $ 0.52 $ 0.03 $ 0.15 $ 0.31 $ $ Dividends per share (5) Average number of shares, diluted 0.22 $ 411.8 0.11 $ 410.8 0.09 $ 409.3 0.07 $ 406.2 0.06 $ 407.7 0.05 $ 406.1 0.04 $ 402.3 0.03 $ 397.2 0.03 $ 392.5 0.03 392.5 Cash and marketable securities Working capital Property, plant & equipment, net Capital expenditures Depreciation & amortization Total assets Long-term debt, including current portion Shareholders' equity Return on average equity (%) Number of shareholders (#) Number of employees (#) 1,414.8 2,182.8 951.7 217.5 331.8 5,873.8 14.8 4,191.0 20.8 4,091 18,806 1,056.5 1,621.3 831.0 271.7 289.9 4,992.5 231.6 3,300.2 21.1 3,979 17,265 349.4 1,029.1 700.5 187.8 250.9 4,120.0 10.0 2,788.2 17.7 3.784 15,891 65.9 563.2 604.7 144.5 229.7 3,188.1 26.1 2.183.9 23.5 3,084 14,762 37.8 443.8 519.2 139.0 186.1 2,838.0 501.7 1,520.7 25.3 2,983 14,045 50.1 459.7 444.0 161.9 172.0 2,439.4 722.6 1,072.0 26.3 2,886 12,839 54.0 379.6 378.1 80.7 168.6 2,441.4 1,012.5 865.5 27.4 2,904 12,084 83.5 440.8 391.5 76.4 162.8 2,586.3 1,287.4 677.3 2.0 2,929 10,925 138.6 666.2 429.5 51.3 53.2 2,878.1 1,503.0 675.3 8.9 3,061 10,974 351.1 433.7 163.9 35.2 49.5 986.4 78.1 614.1 21.6 3,127 5,691 Income Statements Net sales Cost of sales Gross profit RD&E expenses SG&A expenses Amortization of intangibles In-process R&D 2006 2005 $5,405.6 $4,871.5 1,848.7 1,718.5 3,556.9 3,153.0 324.6 284.7 2,061.7 1,853.5 43.6 48.8 52.7 15.9 2,482.6 2,202.9 1,074.3 950.1 Operating income Other income lexpense) Earnings before taxes Income taxes Marawings 29.5 4.5 1,103.8 954.6 326.1 311.0 $ 777.7 $ 643.6 December 31, Balance Sheets 2006 2005 Cash and marketable securities $ 1,414.8 $1,056.5 Accounts receivable 907.0 770.3 Inventories 677.6 563.5 Deferred income taxes 417.2 383.1 Prepaid expenses 117.7 96.7 Total current assets 3,534.3 2,870.1 Property, plant & equipment, net Other assets Teria/auses 951.7 1,387.8 5,873.8 831.0 1,291.4 4,992.5 Accounts payable Accrued compensation Income taxes payable Dividends payable Accrued expenses and other Current maturities of LTD Total current liabilities 252.2 285.9 208.2 89.7 500.7 14.8 1,351.5 206.5 252.9 207.3 44.6 490.1 47.4 1,248.8 Long-term debt Other liabilities Shareholders' equity Tota/kabiles & 184.2 331.3 259.3 4,191.0 3,300.2 $5,873.8 $4,992.5 Exhibit 1 Selected Historical & Operating Data (US$ millions except as noted) 2006 5,405.6 3,556.9 324.6 2,061.7 43.6 52.7 2005 4,871.5 3,153.0 284.7 1,853.5 48.8 15.9 2004 4,262.3 2.748.5 214.9 1,683.5 47.8 120.8 2003 3,625.3 2,310.1 183.0 1,439.9 45.4 2002 3,011.6 1,897.9 143.9 1,186.8 28.9 2001 2,602.3 1,636.8 143.8 1,000.3 38.4 2000 2.289.4 1,472.7 123.7 898.0 34.7 Net sales Gross profit RD&E expenditures G&A expenditures Intangibles amortization Purchased in-process R&D Restructuring & other special charges Operating income Other income (expense) ncome taxes 1999 2,103.7 1,113.1 105.6 816.1 33.9 1998 1,103.2 630.7 61.4 376.7 7.6 83.3 19.0 82.7 4.3 29.5 1997 980.1 582.1 57.2 336.4 7.2 1,074.3 29.5 326.1 950.1 4.5 311.0 681.5 (3.4) 238.1 641.8 (18.8) 188.6 17.2 521.1 (40.8) 151.8 0.6 453.7 (66.3) 127.4 (1.0) 417.3 (97.8) 108.4 18.9 138.6 (117.8) 7.1 181.3 11.3 69.0 Net earnings 777.7 643.6 440.0 434.4 328.5 255.2 211.1 13.7 57.5 123.6 Earnings per share, fully diluted ($) $ 1.89 $ 1.57 $ 1.08 $ 1.07 $ 0.81 $ 0.64 $ 0.52 $ 0.03 $ 0.15 $ 0.31 $ $ Dividends per share (5) Average number of shares, diluted 0.22 $ 411.8 0.11 $ 410.8 0.09 $ 409.3 0.07 $ 406.2 0.06 $ 407.7 0.05 $ 406.1 0.04 $ 402.3 0.03 $ 397.2 0.03 $ 392.5 0.03 392.5 Cash and marketable securities Working capital Property, plant & equipment, net Capital expenditures Depreciation & amortization Total assets Long-term debt, including current portion Shareholders' equity Return on average equity (%) Number of shareholders (#) Number of employees (#) 1,414.8 2,182.8 951.7 217.5 331.8 5,873.8 14.8 4,191.0 20.8 4,091 18,806 1,056.5 1,621.3 831.0 271.7 289.9 4,992.5 231.6 3,300.2 21.1 3,979 17,265 349.4 1,029.1 700.5 187.8 250.9 4,120.0 10.0 2,788.2 17.7 3.784 15,891 65.9 563.2 604.7 144.5 229.7 3,188.1 26.1 2.183.9 23.5 3,084 14,762 37.8 443.8 519.2 139.0 186.1 2,838.0 501.7 1,520.7 25.3 2,983 14,045 50.1 459.7 444.0 161.9 172.0 2,439.4 722.6 1,072.0 26.3 2,886 12,839 54.0 379.6 378.1 80.7 168.6 2,441.4 1,012.5 865.5 27.4 2,904 12,084 83.5 440.8 391.5 76.4 162.8 2,586.3 1,287.4 677.3 2.0 2,929 10,925 138.6 666.2 429.5 51.3 53.2 2,878.1 1,503.0 675.3 8.9 3,061 10,974 351.1 433.7 163.9 35.2 49.5 986.4 78.1 614.1 21.6 3,127 5,691 Income Statements Net sales Cost of sales Gross profit RD&E expenses SG&A expenses Amortization of intangibles In-process R&D 2006 2005 $5,405.6 $4,871.5 1,848.7 1,718.5 3,556.9 3,153.0 324.6 284.7 2,061.7 1,853.5 43.6 48.8 52.7 15.9 2,482.6 2,202.9 1,074.3 950.1 Operating income Other income lexpense) Earnings before taxes Income taxes Marawings 29.5 4.5 1,103.8 954.6 326.1 311.0 $ 777.7 $ 643.6 December 31, Balance Sheets 2006 2005 Cash and marketable securities $ 1,414.8 $1,056.5 Accounts receivable 907.0 770.3 Inventories 677.6 563.5 Deferred income taxes 417.2 383.1 Prepaid expenses 117.7 96.7 Total current assets 3,534.3 2,870.1 Property, plant & equipment, net Other assets Teria/auses 951.7 1,387.8 5,873.8 831.0 1,291.4 4,992.5 Accounts payable Accrued compensation Income taxes payable Dividends payable Accrued expenses and other Current maturities of LTD Total current liabilities 252.2 285.9 208.2 89.7 500.7 14.8 1,351.5 206.5 252.9 207.3 44.6 490.1 47.4 1,248.8 Long-term debt Other liabilities Shareholders' equity Tota/kabiles & 184.2 331.3 259.3 4,191.0 3,300.2 $5,873.8 $4,992.5