Part 1: Make two simple assumption changes:

Base year revenue is $2.0 billion in 2006 (as compared to $2.5 billion in the Book and Lecture).

The maturity growth rate is 7%, rather than 6%.

Please recreate the Free Cash Flow, Terminal Value and Total Enterprise Value tables and fill in numbers based on these assumption changes.

You should use Excel for the calculations. Then copy and paste that to Word. Please Paste Special and select Microsoft Excel Worksheet Object.

Part 2: Discuss some of the benefits and disadvantages of using the Discounted Cash Flow valuation method.

Valuation Equation: FCFs FCFe/r-g) Assumptions: Sales Growth: Growth at 10% per year declining by 5 and 6% thereafter Shares outstanding (mil): 40 Years 2 9.5% 6.0% 5.0% 3 9.0% 6.0% 5.0% 5 7.0% 6.0% 5.0% Sales Growth Rate After-Tax Operating Margin Net Op. Cap. Exp.Sales Weighted Average Cost Capital (WACC) Long Run Growth Rate Sales Base Level 2006: 10.0% 6.0% 5.0% 12.0% 6.0% 8.0% 6.0% 5.0% 2,500 Free Cash Flows (1-5) Sales (mll $) 2,750.0 3,011.3 3,282.3 3,544.8 3,793.0 227.6 Net Operating Capital Expenditures 137.5 150.6 164. 772189.6 37.9 21.5 NOPAT 165.0 180.7 196.9 212.7 Free Cash Flows (FCFs) Present Value of FCFs 30.1 24.0 32.8 23.4 27.5 35.4 22.5 24.6 Terminal Value Calculation Total Enterprise Value Free Cash Flow Year 6 Term. Value of Company in Year5 Present Value of Terminal Value 40.2 670.1 380.2 Present Value of FCF's (years 1-5) Present Value Company's Terminal Value Total Enterprise Value Deduct Market Value of Debt & Preferred Total Value Common Equity Shares Outstanding Price of Share of Stock 116.0 380.2 496.2 100.0 396.2 9.9