Question: How did they determine the Present Value Factor numbers circled below in Red?

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We use data in Exhibit 8 to compute CAPX and compute NWC changes. 1980 1981 1982 1983 1984 1985 1986 Net PPE (Year Start) +Cap Expenditure -Depreciation Net PPE (Year End)) 10, 600 485 1060 10, 025 10025 525 1110 9, 440 9440 560 1160 8, 840 8840 600 1210 8, 230 8230 600 1270 7, 560 7560 600 1330 6, 830 6830 600 1390 6, 040 2072 Net WC Change in WC 1196 -204 1512 316 1778 266 1922 144 2072 150 2072 0 0 EBIT* (1-48% +Depreciation -Change NWC 433 1060 -204 1153 1110 316 1578 1160 266 1630 1210 144 1574 1270 150 1574 1330 0 1574 1390 0 Capital Exp 485 525 560 600 600 600 600 Free Cash Flows = 1, 212 1, 422 1, 912 2, 096 2,094 2, 304 2, 364 Present value factor 0.86951855 0.7560625 PV of Free Cash FIOWS 1054 1075 0. 65741 0.571631 0.4970433 0.432188 0. 375796 1257 1198 1041 996 888 EXHIBIT 8 Pro Forma Income Statement of Collinsville Plant (in '000) ----- For years ended December 31 ----- 1980 1981 1982 1983 1984 REVENUES Sales - tons Avg. price/ton Sales - $000 $32.000 415 13,280 $35,000 480 16.800 $38,000 520 19.760 $38,000 562 21,356 $38.000 606 23,028 MANUFACTURING COSTS: 6,304 645 1.285 $8,234 7,735 791 1,621 $10,147 9,386 875 1,753 $12.014 10,526 940 1,836 $13,302 11,780 992 1,956 $14,728 1.427 VARIABLE COSTS Power Graphite Salt & other TOTAL FIXED COSTS Labor Maintenance Other TOTAL TOTAL MFG COSTS OTHER CHARGES Selling R&D Depreciation TOTAL OPER. PROFIT 1.180 256 1,154 $2,590 $10,824 1.297 277 1.148 $2.722 $12.869 299 1.179 $2.905 $14,919 1,580 322 1,113 $3,015 $16,317 1.738 354 1,153 $3,245 $17,973 112 125 138 451 478 508 1,060 1.110 1.160 $1,623 $1,713 $1,806 $833 $2.218 $3,035 Pro Forma Balance Sheet (as of December 31) Collinsville Plant (in '000) Expected 1979 1980 1981 1982 152 543 1.210 $1,905 $3,134 168 591 1,270 $2,029 $3,026 1983 1984 ASSETS Accts. rec. Inventories Net PP&E TOTAL ASSETS 1.622 651 10,600 $12,873 1,328 598 10,025 $11.951 1.680 756 9.440 $11,876 1,976 889 8.840 $11,705 2.136 961 8.230 $11,327 2,303 1,036 7,560 $10,899 LIABILITIES Accts. payable NET ASSETS 873 $12.000 1.087 $10.618 1,175 $10,152 1.267 $9.632 730 924 $11.221 $10.952 Percent of Sales Ratios 1980 1981 1982 1983 1984 % OF SALES Power costs Variable costs Fixed costs Mfg. costs Oper. profit 47.5% 62.0% 19.5% 81.5% 6.3% 46.0% 60.4% 16.2% 76.6% 13.2% 47.5% 60.8% 14.7% 75.5% 15.4% 49.3% 62.3% 14.1% 76.4% 14.7% 51.2% 64.0% 14.1% 78.0% 13.1% Accts rec. Inventories Accts. payable Net assets 10.0% 4.5% 5.5% 84.5% 10.0% 4.5% 5.5% 65.2% 10.0% 4.5% 5.5% 53.7% 10.0% 4.5% 5.5% 47.5% 10.0% 4.5% 5.5% 41.8% Operating profit/ net assets 7.4% 20.3% 28.6% 30.9% 31.4% (a) These pro forma financial statements were based on the following assumptions (1) Continued use of unlaminated graphite electrodes. (2) Though excess industry capacity would hold price increases to less than an 8% annual rate in 1980, by 1984 the average annual price increase over the period 1979-1984 was assumed to equal 8% (3) Power costs per KWH would increase 12 percent per year. (4) Depreciation would increase because Dixon would have written-up the value of the Collinsville plant to $10.6 million