In 1972, bond yields and inflation were approximately as follows:

Long-term Treasuries: 6.2%

AAA Corporate Bonds: 7.2%

BBB Corporate Bonds: 7.8%

Inflation rate (CPI): 3.2%

Assume du Ponts credit rating in 1972 was A as rated by S&P

Use the Photos of Spreadsheets Below!

Estimate du Ponts cost of equity, cost of debt & WACC. Outline your methodology and assumptions in determining each of these measures. (10 pt)

3:45 PM Sat Nov 6 * 11% Done Dupont.xlsx Open in Excel Copyright Exhibit 1 Exhibit 2 Exhibit 3 Exhibit 4 Maintain P&L & FCF Growth P&L FCF (2) Question 2 Maintain Strategy (000 tons: $ millions) ) 1976 1980 1973 752 35% 822 Sales Total market volume Du Pont rkl share Du Pont volume Du Pont existing capacity Increm tons from new cap Price/ton Incremental sales 263.2 1974 774 40% 309.6 325 0 $665 1975 798 45% 359.1 325 34.1 $760 S26 1977 846 45% 380.7 325 55.7 $956 $53 45% 369.9 325 44.9 5890 $40 1978 872 45% 392.4 325 67.4 $1,015 $6B 1979 898 45% 404.1 325 79.1 $1,070 $85 1981 952 45% 428.4 325 103.4 $1,170 S121 925 45% 416.25 325 91.25 S1,120 $102 1982 981 45% 441.45 325 116.45 $1,210 $141 1983 1010 45% 454.5 325 129.5 $1,270 $164 1984 1.041 45% 468.45 325 143.45 $1,320 $189 325 0 5555 SO 1985 1,072 45% 482.4 325 157.4 $1,370 $216 S890 Profit Price/ton - Coston = Pretax profitton x Incremental tonnage = Incremental pretax profit Tax (48%) Incremental EBIAT S555 S330 S225 0 $0.0 $0.0 $0.0 $665 $390 $275 0 0 $0.0 $0.0 $0.0 $760 $460 $300 34.1 $10.2 $4.9 $5.3 S540 S350 44.9 $15.7 $7.5 $8.2 $956 $580 $375 55.7 S20.9 S100 S10.9 $1,015 S620 $395 67.4 $26.6 $12.8 $13.8 $1,070 $660 $410 79.1 $32.4 $15 6 $16.9 S1,120 5690 $430 91.25 $39.2 $18.8 $20.4 $1,170 S710 S460 103.4 $47.6 $22.8 $24.7 $1,210 $740 $470 116.45 S54.7 $26.3 $28.5 S1,270 $770 $500 129.5 $64.8 $31.1 $33.7 $1,320 sa 10 S510 143.45 S73.2 $35.1 $38.0 $1,370 $8.50 $ $520 157.4 $81.8 $39.3 $426 404 Capital Expenditures Capacity under Maintain Strategy Cost of new capacity/ton x Tons of new capacity added = Incremental cap expenditure 340 S900 15 $13.5 350 $927 10 $9.3 360 $955 10 $9.6 370 S983 10 $9.8 381 $1,013 11 $11.1 392 $1,043 11 $11.5 $1,075 12 $12.9 416 S1, 107 12 $13.3 428 $1,140 12 $13.7 441 $1,174 13 $15.3 455 $1,210 14 $16.9 468 $1.246 13 $16.2 482 $1,283 14 $18.0 Free Cash Flow Incrernental EBIAT + ITC Incremental inllows $0.0 1.4 $1.4 $0.0 0.9 $0.9 $5.3 1.0 $6.3 $82 1.0 $92 $10.9 1.1 $11.9 $13.8 1.4 $15.2 $16.9 1.7 $18.8 $20.4 2.0 $22.4 $24.7 2.5 $27.2 $28.5 2.8 $31.3 $33.7 3.4 $37.0 $38.0 3.8 S41.8 $426 4.3 $46.8 Less: Incremental capital investment + Additional NWC = Incremental outflows $13,5 0.0 $13,5 $9.3 0.0 $9.3 $9.6 5.2 $14.7 S9 B 2.8 $7.0 $11.1 2.6 $8.5 $11,5 3.0 $8.4 $12.9 3.2 $9.7 $13.3 3.5 59.8 $13.7 3.8 $9.9 $153 4.0 $11.3 $16.9 4.7 $12.2 $16.2 5.0 $11.2 $180 5.3 $12.7 Terminal value Incremental free cash flow (S12.2) (58.3) (S8.5) $2.1 $3.5 $6.8 $8.9 $12.7 $17.3 $20.0 $24.8 $30.6 $34.1 3:45 PM Sat Nov 6 11% | Done Dupont.xlsx Open in Excel 1971 1970 1969 1968 1967 Income Statement Sales Net income S3.848 357 $3,618 334 $3,632 356 $3,455 372 $3.079 314 Cash flow from operations 727 684 677 659 583 Earnings per share Dividends per share 7.33 5.00 6.86 5.00 7.62 5.25 7.99 5.50 6.73 5.00 Average shares outstanding (000) 47,281 47.257 47,076 46.285 46,158 Balance Sheet Net working capital Net property, plant and equipment Total assets S1,221 2,002 3,999 $1,100 1,923 3,740 $1,107 1,803 3,453 S996 1.738 3.289 $ $874 1,724 3,071 162 Total debt Shareholders' equity Total capital 307 3,095 3,402 216 2,964 3,180 186 2,854 3,040 2.697 2,859 125 2.557 2.682 Book value per share Market value per sharea 60.23 143.75 57.67 113.38 55.53 133.38 53.09 162.75 50 22 163.25 Capital Sources Cash flow retained External equity financing (net) Debt financing (net) $480 21 911 $438 37 30 $423 35 24 5394 23 37 $308 19 67 Total capital added $592 $505 $482 $454 $ $394 Capital Expenditures $454 $471 $391 5332 $454 Key Financial Ratios Growth rate (%) Sales Profits 6.4 (0.4) (6.2) 5.1 14.3) 12.2 18.5 (2.5) (19.3) 6.9 10.8 Return on sales (%) Return on equity (%) ) 9.3 11.5 9.2 11.3 9.8 12.5 102 12.3 11.3 Current ratio 3.5 3.6 3.6 3.6 3.2 Debt and total capital (%) 9.0 6.8 6.1 5.7 4.7 Price earnings ratioa Market value/Book valuea 19.6 2.4 16.5 2.0 17.5 2.4 20.4 3.1 24 2 3.3 3:45 PM Sat Nov 6 * 11% Done Dupont.xlsx Open in Excel Copyright Exhibit 1 Exhibit 2 Exhibit 3 Exhibit 4 Maintain P&L & FCF Growth P&L FCF (2) Question 2 Maintain Strategy (000 tons: $ millions) ) 1976 1980 1973 752 35% 822 Sales Total market volume Du Pont rkl share Du Pont volume Du Pont existing capacity Increm tons from new cap Price/ton Incremental sales 263.2 1974 774 40% 309.6 325 0 $665 1975 798 45% 359.1 325 34.1 $760 S26 1977 846 45% 380.7 325 55.7 $956 $53 45% 369.9 325 44.9 5890 $40 1978 872 45% 392.4 325 67.4 $1,015 $6B 1979 898 45% 404.1 325 79.1 $1,070 $85 1981 952 45% 428.4 325 103.4 $1,170 S121 925 45% 416.25 325 91.25 S1,120 $102 1982 981 45% 441.45 325 116.45 $1,210 $141 1983 1010 45% 454.5 325 129.5 $1,270 $164 1984 1.041 45% 468.45 325 143.45 $1,320 $189 325 0 5555 SO 1985 1,072 45% 482.4 325 157.4 $1,370 $216 S890 Profit Price/ton - Coston = Pretax profitton x Incremental tonnage = Incremental pretax profit Tax (48%) Incremental EBIAT S555 S330 S225 0 $0.0 $0.0 $0.0 $665 $390 $275 0 0 $0.0 $0.0 $0.0 $760 $460 $300 34.1 $10.2 $4.9 $5.3 S540 S350 44.9 $15.7 $7.5 $8.2 $956 $580 $375 55.7 S20.9 S100 S10.9 $1,015 S620 $395 67.4 $26.6 $12.8 $13.8 $1,070 $660 $410 79.1 $32.4 $15 6 $16.9 S1,120 5690 $430 91.25 $39.2 $18.8 $20.4 $1,170 S710 S460 103.4 $47.6 $22.8 $24.7 $1,210 $740 $470 116.45 S54.7 $26.3 $28.5 S1,270 $770 $500 129.5 $64.8 $31.1 $33.7 $1,320 sa 10 S510 143.45 S73.2 $35.1 $38.0 $1,370 $8.50 $ $520 157.4 $81.8 $39.3 $426 404 Capital Expenditures Capacity under Maintain Strategy Cost of new capacity/ton x Tons of new capacity added = Incremental cap expenditure 340 S900 15 $13.5 350 $927 10 $9.3 360 $955 10 $9.6 370 S983 10 $9.8 381 $1,013 11 $11.1 392 $1,043 11 $11.5 $1,075 12 $12.9 416 S1, 107 12 $13.3 428 $1,140 12 $13.7 441 $1,174 13 $15.3 455 $1,210 14 $16.9 468 $1.246 13 $16.2 482 $1,283 14 $18.0 Free Cash Flow Incrernental EBIAT + ITC Incremental inllows $0.0 1.4 $1.4 $0.0 0.9 $0.9 $5.3 1.0 $6.3 $82 1.0 $92 $10.9 1.1 $11.9 $13.8 1.4 $15.2 $16.9 1.7 $18.8 $20.4 2.0 $22.4 $24.7 2.5 $27.2 $28.5 2.8 $31.3 $33.7 3.4 $37.0 $38.0 3.8 S41.8 $426 4.3 $46.8 Less: Incremental capital investment + Additional NWC = Incremental outflows $13,5 0.0 $13,5 $9.3 0.0 $9.3 $9.6 5.2 $14.7 S9 B 2.8 $7.0 $11.1 2.6 $8.5 $11,5 3.0 $8.4 $12.9 3.2 $9.7 $13.3 3.5 59.8 $13.7 3.8 $9.9 $153 4.0 $11.3 $16.9 4.7 $12.2 $16.2 5.0 $11.2 $180 5.3 $12.7 Terminal value Incremental free cash flow (S12.2) (58.3) (S8.5) $2.1 $3.5 $6.8 $8.9 $12.7 $17.3 $20.0 $24.8 $30.6 $34.1 3:45 PM Sat Nov 6 11% | Done Dupont.xlsx Open in Excel 1971 1970 1969 1968 1967 Income Statement Sales Net income S3.848 357 $3,618 334 $3,632 356 $3,455 372 $3.079 314 Cash flow from operations 727 684 677 659 583 Earnings per share Dividends per share 7.33 5.00 6.86 5.00 7.62 5.25 7.99 5.50 6.73 5.00 Average shares outstanding (000) 47,281 47.257 47,076 46.285 46,158 Balance Sheet Net working capital Net property, plant and equipment Total assets S1,221 2,002 3,999 $1,100 1,923 3,740 $1,107 1,803 3,453 S996 1.738 3.289 $ $874 1,724 3,071 162 Total debt Shareholders' equity Total capital 307 3,095 3,402 216 2,964 3,180 186 2,854 3,040 2.697 2,859 125 2.557 2.682 Book value per share Market value per sharea 60.23 143.75 57.67 113.38 55.53 133.38 53.09 162.75 50 22 163.25 Capital Sources Cash flow retained External equity financing (net) Debt financing (net) $480 21 911 $438 37 30 $423 35 24 5394 23 37 $308 19 67 Total capital added $592 $505 $482 $454 $ $394 Capital Expenditures $454 $471 $391 5332 $454 Key Financial Ratios Growth rate (%) Sales Profits 6.4 (0.4) (6.2) 5.1 14.3) 12.2 18.5 (2.5) (19.3) 6.9 10.8 Return on sales (%) Return on equity (%) ) 9.3 11.5 9.2 11.3 9.8 12.5 102 12.3 11.3 Current ratio 3.5 3.6 3.6 3.6 3.2 Debt and total capital (%) 9.0 6.8 6.1 5.7 4.7 Price earnings ratioa Market value/Book valuea 19.6 2.4 16.5 2.0 17.5 2.4 20.4 3.1 24 2 3.3