Question 1

The cost of equity is built on the three factors the risk-free rate, the market risk premium and a company-specific risk adjustment The most commonly used model for this estimate is the capital asset pricing model (CAPM) To determine the CAPM we need to estimate a risk-free rate the market risk premium and the market beta

1. a. To determine the risk-free rate, please use Treasury data from the "Select Market Data" spreadsheet On the "Yields" tab. You will find yields to maturitiesfor US and German Treasury rates For Henkel AG, which Treasury rate at which maturity is most appropriate to use in valuing the company

b. To determine Henkel's corporate beta, unlever (and relever) the ordinary least squares (OLS) market betas for each company in the European Household and Personal Care segment, Prices can be found on the 'Prices" tab of the 'Select Market Data- spreadsheet. To determine the OLS market beta, regress 10-year monthly returns against the MSCI World index denominated in the same currency. In Excel, this can be done using the 'SLOPE' formula. Next unlever the market beta using each company's year-end debt-to-equity ratio and the formula b_u= b_e/1(+D/E). To determine Henkel's corporate beta relever the average industry beta using Henkels year-end debt - to equity ratio. Repeat this process for each of Henkel's divisions

c. Assume the market risk premium equals 5 percent.

Question 2

Henkel does not carry debt beyond five years .To determine the cost of debt:

a.For Henkel AG, which Treasury rate at which maturity is mostappropriate to use in valuing the cost of debt of the company?

b.Add a default premium based on the company?s debt rating byStandard & Poor?s. Yields by credit rating can be found on the?Yields? worksheet of the ?Select Market Data? spreadsheet.Henkel reports its debt rating on its investor relations web site atwww.henkel.com/investor-relations/credit-ratings-11952.htm. If the company?s rating is between reported portfolios, interpolatebetween the nearest ratings.

c.Determine Henkel?s marginal tax rate, use the tax reconciliationtable in the annual report. Set the marginal tax rate equal to the?Tax rate on income.?

d.To complete the cost of capital, weight the after-tax cost of debtand cost of equity using the company?s year-end capital structure(found in the ?Select Market Data? spreadsheet).

Henkel Integrative Case European Household and Personal Care, 2009 Ticker BEI-FF GIVN-VX HEN-FF OR-FR ORI-SK RB.-LN SCA'B-SK ULVR-LN Company Beiersdorf Givaudan SA Henkel AG L'Oreal SA Oriflame Cosmetics Reckitt Benckiser Svenska Cellulosa AB Unilever plc Year 2009 FYE 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 Currency EUR CHF EUR EUR EUR GBP SEK GBP Revenues (in euros) 5,748.0 2,669.4 13,573.0 17,472.6 1,316.6 8,726.4 10,821.7 39,785.8 Currency USD USD USD USD USD USD USD USD USD Revenues (in euros) 7,168.5 1,757.1 10,683.0 3,885.6 763.0 5,227.3 2,736.4 13,323.2 56,343.8 Revenues 5,748.0 3,959.0 13,573.0 17,472.6 1,316.6 7,753.0 110,857.0 35,347.7 Cost of sales 1,892.0 2,355.0 7,293.0 5,090.8 450.8 3,115.0 68,844.0 18,416.3 Operating profit SG&A Amortization (EBITA) 3,250.0 24.0 630.0 1,084.0 176.0 696.0 5,025.0 108.0 1,363.0 9,716.2 - 2,665.6 778.1 2.7 90.4 2,699.0 8.0 1,947.0 36,381.0 306.0 5,938.0 11,705.0 149.1 5,375.4 Accounts Inventory receivable 561.0 947.0 633.0 831.0 1,236.0 2,115.0 1,476.7 2,826.8 221.3 72.1 486.0 896.0 11,459.0 18,447.0 3,173.0 2,775.7 Accrued payroll - 92.0 67.0 - - - 2,236.0 - Accounts payable 699.0 322.0 1,885.0 2,603.1 45.2 790.0 12,277.0 3,531.3 PP&E 725.0 1,437.0 2,248.0 2,599.0 134.1 639.0 86,801.0 5,920.4 Revenues 10,284.7 2,520.9 15,327.0 5,450.0 1,070.2 7,331.9 3,999.8 19,115.0 79,029.0 Cost of sales 3,881.6 1,420.4 6,303.0 3,111.0 659.7 1,888.4 2,141.2 12,603.0 38,723.0 Operating profit SG&A Amortization (EBITA) 5,311.6 47.7 1,139.2 709.0 28.4 419.9 5,360.0 22.0 3,686.0 1,328.0 17.0 1,028.0 400.3 9.8 20.0 4,902.5 13.8 554.8 1,212.8 19.4 665.2 3,300.0 18.0 3,230.0 23,957.0 648.0 16,997.0 Accounts Inventory receivable 1,067.5 923.0 216.9 222.8 1,209.0 1,626.0 366.0 492.0 318.5 190.3 795.0 853.3 667.3 864.3 2,033.0 2,566.0 6,880.0 5,836.0 Accrued payroll 291.0 65.4 431.0 123.0 - 280.8 92.3 411.0 1,464.0 Accounts payable 746.7 177.8 1,172.0 381.0 191.2 329.8 231.6 1,920.0 5,980.0 PP&E 1,529.6 455.6 3,516.0 955.0 64.1 1,026.7 863.4 8,033.0 19,462.0 Henkel Integrative Case U.S. Household and Personal Care Ticker AVP-N CHD-N CL-N CLX-N RDEN-O EL-N ENR-N KMB-N PG-N Company Avon Products Inc. Church & Dwight Co. Colgate-Palmolive Co. Clorox Company (The) Elizabeth Arden Estee Lauder Co. Energizer Holdings Kimberly-Clark Corp. Procter & Gamble Co. FYE 12/31/09 12/31/09 12/31/09 06/30/09 06/30/09 06/30/09 09/30/09 12/31/09 06/30/09 Source: JPMorgan, Worldscope, Thomson Financial. Henkel Integrative Case Capital structure, 2009 Debt and debt equivalents Total Ticker BEI-FF GIVN-VX HEN-FF OR-FR ORI-SK RB.-LN SCA'B-SK ULVR-LN Company name Beiersdorf Givaudan SA Henkel AG L'Oreal SA Oriflame Cosmetics Reckitt Benckiser Svenska Cellulosa AB Unilever plc FYE 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 Currency EUR CHF EUR EUR EUR GBP SEK GBP Unfunded Debt & debt 155.0 3,073.0 4,179.0 3,131.3 262.3 136.0 43,979.0 8,721.0 retirements 81.0 282.0 844.0 1,015.5 - 200.0 3,411.0 2,289.8 equivalents 236.0 3,355.0 5,023.0 4,146.8 262.3 336.0 47,390.0 11,010.8 Market capitalization 1 Henkel Integrative Case Segment comparables Net Cash (1,813.0) (892.0) (1,226.0) (1,238.5) (107.2) (356.0) (5,342.0) (3,205.0) Share debt (1,577.0) 2,463.0 3,797.0 2,908.3 155.1 (20.0) 42,048.0 7,805.8 price 46.2 826.5 31.0 78.0 428.5 33.6 95.5 19.9 Debt and debt equivalents 2 Shares Market outstanding capitalization 226.8 10,470.0 9.1 7,516.6 433.7 13,445.2 586.2 45,720.2 57.0 24,416.0 725.5 24,348.6 702.3 67,038.6 2,815.5 56,141.1 Market capitalization FYE Currency Total debt Unfunded retirements Debt & equivalents Cash Net debt Share price CLX-N PG-N ULVR-LN Company name Laundry & Home Care Clorox Company (The) Procter & Gamble Co. Unilever plc 06/30/09 06/30/09 12/31/09 USD USD GBP 3,149.0 36,972.0 8,721.0 263.0 5,240.0 2,289.8 3,412.0 42,212.0 11,010.8 (206.0) (4,781.0) (3,205.0) 3,206.0 37,431.0 7,805.8 61.0 60.6 19.9 139.4 2,799.2 2,815.5 8,506.0 169,715.1 56,141.1 BEI-FF CL-N EL-N Cosmetics & Toiletries Beiersdorf AG Colgate-Palmolive Co. Estee Lauder Co. 12/31/09 12/31/09 06/30/09 EUR USD USD 155.0 3,182.0 1,421.4 81.0 1,283.0 286.2 236.0 4,465.0 1,707.6 (1,813.0) (740.0) (881.2) (1,577.0) 3,725.0 826.4 46.2 82.2 48.4 226.8 482.7 195.8 10,470.0 39,652.5 9,467.9 MMM-N AVY-N FUL-N Adhesives 3M Company Avery Dennison Corp. Fuller (H B) Co. 12/31/09 01/02/10 11/28/09 USD USD USD 5,830.0 1,624.3 212.7 2,190.0 326.6 73.4 8,020.0 1,950.9 286.1 (3,809.0) (143.6) (100.2) 4,211.0 1,807.3 186.0 82.7 36.5 22.8 714.9 109.4 49.0 59,097.4 3,992.6 1,114.3 Ticker Source: Worldscope, Thomson Financial. 1 For Henkel AG, total debt includes current financial liabilities, excluding operating sundry items. as of fiscal year-end 2009, except share price, which was measured on December 31, 2009. 2Data Shares Market outstanding capitalization Henkel Integrative Case Adjusted stock prices (adjusted for dividends and splits) Date ### ### ### 9/30/2009 8/31/2009 7/31/2009 6/30/2009 5/29/2009 4/30/2009 3/31/2009 2/27/2009 1/30/2009 ### ### ### 9/30/2008 8/29/2008 7/31/2008 6/30/2008 5/30/2008 4/30/2008 3/31/2008 2/29/2008 1/31/2008 ### ### ### 9/28/2007 8/31/2007 7/31/2007 6/29/2007 5/31/2007 4/30/2007 3/30/2007 2/28/2007 1/31/2007 ### ### ### 9/29/2006 EUR BEI-FF 46.2 43.5 41.6 40.1 35.5 35.3 33.5 34.7 30.1 32.8 32.1 37.3 41.0 42.3 41.2 43.7 38.6 40.5 45.5 49.0 52.6 51.0 50.8 49.5 50.7 52.7 52.4 50.2 47.4 49.1 50.6 51.2 50.8 48.5 46.3 48.7 46.7 42.3 42.2 39.6 CHF GIVN-VX 826.5 795.0 762.0 777.0 761.0 714.5 665.5 671.2 697.6 549.7 630.2 733.6 773.7 740.2 735.1 866.9 855.2 797.9 850.6 940.9 980.1 915.3 958.3 968.3 996.6 993.0 1,039.5 982.9 996.6 1,035.9 1,105.3 1,064.2 1,038.6 1,010.1 974.2 1,008.3 1,013.7 964.3 925.6 899.6 EUR HEN-FF 31.0 28.7 26.7 24.8 23.3 22.0 19.2 19.1 18.7 18.4 16.5 17.8 18.5 18.7 18.7 21.1 23.2 23.9 23.1 28.1 25.1 25.6 25.6 26.8 33.3 32.9 30.4 31.6 32.9 34.3 33.7 33.4 32.7 31.5 29.9 33.2 30.8 29.6 29.4 30.3 Laundry EUR OR-FR 78.0 72.3 69.7 67.9 68.7 60.8 53.3 55.8 54.2 50.4 49.9 50.7 60.6 61.9 57.4 67.3 66.0 65.5 67.2 76.0 74.1 76.8 75.1 78.7 93.5 90.6 86.5 87.8 82.1 80.6 83.8 84.3 83.0 77.0 74.5 76.4 71.5 71.7 71.8 75.4 EUR ORI-SK 428.5 411.0 400.0 357.0 346.0 358.0 335.5 334.5 337.4 247.0 208.6 190.8 216.8 211.9 229.7 305.2 359.5 378.7 372.5 409.5 429.0 368.7 387.0 324.3 386.0 363.1 358.9 365.4 353.3 322.0 301.4 338.3 322.5 244.7 246.1 255.2 256.6 234.7 237.5 221.1 GBP RB.-LN 3,356.0 3,100.0 3,035.0 3,058.0 2,853.0 2,831.9 2,723.6 2,637.9 2,626.1 2,578.8 2,652.7 2,586.7 2,492.9 2,669.8 2,523.8 2,621.5 2,687.2 2,640.6 2,433.1 2,843.2 2,808.8 2,668.3 2,610.0 2,478.0 2,756.1 2,733.4 2,637.9 2,716.4 2,552.8 2,485.6 2,563.4 2,573.7 2,578.4 2,479.9 2,403.1 2,273.1 2,166.4 2,099.6 2,117.2 2,055.0 SEK SCA'B-SK 95.5 96.0 99.0 94.5 92.8 92.8 81.0 87.3 78.5 59.4 55.8 62.2 63.4 62.0 53.9 68.7 69.8 65.6 81.0 91.5 96.0 98.8 93.1 92.7 104.6 104.1 102.3 109.8 109.1 109.8 105.0 109.3 105.8 113.8 107.1 109.6 105.4 98.9 97.8 99.1 GBP ULVR-LN 1,994.0 1,784.0 1,804.7 1,754.4 1,657.7 1,559.0 1,405.1 1,430.7 1,274.1 1,266.4 1,314.4 1,470.1 1,517.2 1,434.5 1,322.9 1,442.3 1,399.7 1,315.3 1,354.2 1,583.5 1,579.9 1,577.1 1,481.5 1,534.4 1,754.4 1,656.0 1,493.4 1,419.8 1,436.4 1,424.4 1,484.2 1,432.7 1,419.1 1,378.6 1,225.5 1,246.2 1,285.8 1,227.3 1,144.0 1,158.0 USD CLX-N 61.0 60.3 59.2 58.3 58.6 60.5 54.9 51.6 55.1 50.2 47.4 48.9 53.7 57.2 58.7 60.1 56.6 52.2 49.6 54.3 50.3 53.4 54.9 57.8 61.0 60.8 58.6 56.8 55.7 56.3 57.4 62.1 62.0 58.6 58.4 60.2 58.8 58.6 59.2 57.5 USD PG-N 60.6 62.3 58.0 57.5 53.7 55.1 50.3 51.1 48.7 46.0 47.0 53.2 59.9 62.4 62.5 67.1 67.2 63.0 58.2 63.2 64.1 66.6 62.9 62.2 69.5 70.0 65.8 66.2 61.5 58.2 57.3 59.5 60.3 58.8 59.1 60.4 59.6 58.2 58.8 57.2 Cosmetics GBP ULVR-LN 1,994.0 1,784.0 1,804.7 1,754.4 1,657.7 1,559.0 1,405.1 1,430.7 1,274.1 1,266.4 1,314.4 1,470.1 1,517.2 1,434.5 1,322.9 1,442.3 1,399.7 1,315.3 1,354.2 1,583.5 1,579.9 1,577.1 1,481.5 1,534.4 1,754.4 1,656.0 1,493.4 1,419.8 1,436.4 1,424.4 1,484.2 1,432.7 1,419.1 1,378.6 1,225.5 1,246.2 1,285.8 1,227.3 1,144.0 1,158.0 EUR BEI-FF 46.2 43.5 41.6 40.1 35.5 35.3 33.5 34.7 30.1 32.8 32.1 37.3 41.0 42.3 41.2 43.7 38.6 40.5 45.5 49.0 52.6 51.0 50.8 49.5 50.7 52.7 52.4 50.2 47.4 49.1 50.6 51.2 50.8 48.5 46.3 48.7 46.7 42.3 42.2 39.6 Henkel Integrative Case MSCI World Index Date ### ### ### 9/30/2009 8/31/2009 7/31/2009 6/30/2009 5/29/2009 4/30/2009 3/31/2009 2/27/2009 1/30/2009 ### ### ### 9/30/2008 8/29/2008 7/31/2008 6/30/2008 5/30/2008 4/30/2008 3/31/2008 2/29/2008 1/31/2008 ### ### ### 9/28/2007 8/31/2007 7/31/2007 6/29/2007 5/31/2007 4/30/2007 3/30/2007 2/28/2007 1/31/2007 ### ### ### 9/29/2006 MSCI CHF 1,207.9 1,152.4 1,128.6 1,163.8 1,139.6 1,114.0 1,037.6 1,021.6 999.3 896.1 853.3 946.4 950.9 1,050.9 1,079.7 1,278.6 1,420.8 1,374.3 1,368.9 1,525.2 1,495.8 1,348.5 1,436.1 1,500.1 1,695.1 1,712.1 1,831.6 1,790.8 1,767.6 1,761.0 1,833.7 1,847.1 1,767.6 1,711.7 1,680.8 1,725.6 1,668.1 1,604.1 1,624.8 1,579.8 MSCI EUR 814.4 764.3 746.8 767.3 751.4 730.1 680.2 676.8 662.1 593.6 576.7 636.3 642.7 681.8 729.0 811.8 878.6 840.5 853.0 939.4 922.4 860.4 906.3 934.2 1,024.1 1,033.1 1,092.3 1,077.9 1,073.1 1,069.0 1,107.8 1,120.2 1,073.3 1,053.3 1,041.9 1,064.3 1,036.4 1,010.2 1,023.5 994.5 MSCI GBP 723.6 699.2 668.5 701.3 661.6 624.4 579.3 594.1 592.1 549.9 513.9 565.6 621.4 563.8 572.1 639.7 709.2 662.0 675.3 738.7 725.1 686.0 691.7 695.8 752.2 737.5 760.7 752.4 725.3 720.1 745.7 762.0 732.4 714.9 702.3 706.5 698.2 680.7 684.9 674.4 MSCI SEK 8,342.9 8,020.1 7,771.7 7,843.3 7,656.4 7,541.1 7,391.6 7,261.3 7,066.5 6,515.7 6,589.1 6,763.6 7,064.8 7,007.2 7,204.9 7,950.8 8,307.7 7,936.1 8,083.9 8,766.0 8,607.8 8,084.6 8,488.9 8,851.5 9,677.3 9,687.5 10,052.4 9,916.7 10,076.1 9,859.9 10,259.6 10,419.0 9,826.4 9,837.5 9,657.2 9,635.9 9,351.4 9,160.4 9,433.4 9,232.7 MSCI USD 1,168.5 1,147.5 1,101.9 1,121.6 1,078.3 1,035.1 954.0 957.9 877.3 788.1 732.5 815.4 893.4 865.2 924.4 1,140.3 1,293.6 1,311.4 1,343.9 1,459.8 1,436.1 1,363.4 1,375.9 1,383.2 1,497.3 1,516.4 1,580.3 1,532.9 1,462.9 1,463.4 1,496.2 1,507.3 1,464.8 1,402.1 1,376.3 1,383.0 1,366.6 1,339.0 1,306.3 1,259.8 MSCI CHF 4.8% 2.1% -3.0% 2.1% 2.3% 7.4% 1.6% 2.2% 11.5% 5.0% -9.8% -0.5% -9.5% -2.7% -15.6% -10.0% 3.4% 0.4% -10.2% 2.0% 10.9% -6.1% -4.3% -11.5% -1.0% -6.5% 2.3% 1.3% 0.4% -4.0% -0.7% 4.5% 3.3% 1.8% -2.6% 3.4% 4.0% -1.3% 2.9% 2.9% MSCI EUR 6.6% 2.3% -2.7% 2.1% 2.9% 7.3% 0.5% 2.2% 11.5% 2.9% -9.4% -1.0% -5.7% -6.5% -10.2% -7.6% 4.5% -1.5% -9.2% 1.8% 7.2% -5.1% -3.0% -8.8% -0.9% -5.4% 1.3% 0.4% 0.4% -3.5% -1.1% 4.4% 1.9% 1.1% -2.1% 2.7% 2.6% -1.3% 2.9% 2.3% MSCI GBP 3.5% 4.6% -4.7% 6.0% 6.0% 7.8% -2.5% 0.3% 7.7% 7.0% -9.1% -9.0% 10.2% -1.4% -10.6% -9.8% 7.1% -2.0% -8.6% 1.9% 5.7% -0.8% -0.6% -7.5% 2.0% -3.1% 1.1% 3.7% 0.7% -3.4% -2.1% 4.0% 2.5% 1.8% -0.6% 1.2% 2.6% -0.6% 1.6% 3.1% MSCI SEK 4.0% 3.2% -0.9% 2.4% 1.5% 2.0% 1.8% 2.8% 8.5% -1.1% -2.6% -4.3% 0.8% -2.7% -9.4% -4.3% 4.7% -1.8% -7.8% 1.8% 6.5% -4.8% -4.1% -8.5% -0.1% -3.6% 1.4% -1.6% 2.2% -3.9% -1.5% 6.0% -0.1% 1.9% 0.2% 3.0% 2.1% -2.9% 2.2% 2.6% MSCI USD 1.8% 4.1% -1.8% 4.0% 4.2% 8.5% -0.4% 9.2% 11.3% 7.6% -10.2% -8.7% 3.3% -6.4% -18.9% -11.9% -1.4% -2.4% -7.9% 1.6% 5.3% -0.9% -0.5% -7.6% -1.3% -4.0% 3.1% 4.8% - -2.2% -0.7% 2.9% 4.5% 1.9% -0.5% 1.2% 2.1% 2.5% 3.7% 1.2% Yields by Corporate Default Rating Bloomberg, December 2009 U.S. Dollar-Denominated Bonds Euro-Denominated Bonds Rating Treasury1 1Y 2Y 5Y 10Y 20Y 0.49 1.15 2.71 3.92 4.61 AAA AA A+ A A- BBB+ BBB BBB- BB+ BB BBB+ B B- 0.56 0.97 0.99 1.05 1.39 2.06 2.07 2.77 4.04 4.06 4.32 4.56 5.40 5.91 1.29 1.63 1.65 1.71 1.97 2.66 2.68 3.51 4.86 4.88 5.19 5.40 6.31 6.80 3.00 3.47 3.49 3.61 3.81 4.49 4.49 5.46 6.44 6.46 6.76 7.16 8.11 8.60 4.51 4.83 4.85 4.97 5.23 5.57 5.59 6.51 7.51 7.54 7.83 8.23 9.21 9.69 5.25 5.60 5.62 5.71 5.97 6.23 6.27 7.11 8.08 8.09 8.35 8.72 9.74 10.22 U.S. Treasury. German Treasury. 1 2 Rating Treasury2 1Y 2Y 5Y 10Y 20Y 0.85 1.38 2.53 3.38 4.23 AA+/AA AA- A BBB+ BBB BBB- BB 1.34 1.47 1.52 1.60 1.86 2.00 3.42 1.87 1.94 2.06 2.30 2.67 2.83 4.36 3.12 3.31 3.46 3.67 4.09 4.32 6.43 4.13 4.49 4.52 4.74 5.08 5.58 8.03 n/a n/a 5.01 5.46 n/a n/a n/a Henkel Credit Ratings Rating actions Agency Moody's S&P S&P Fitch S&P S&P S&P Date Jul-09 May-09 Apr-07 Nov-05 Oct-04 Apr-04 Dec-03 Rating A3 A- A A- A- A- A+ S&P equivalent A- A- A A- A- A- A+