Tesla Hired the investment bank evecore partners while solarcity hired lazard et freres, to value the deal and provide a fairness opinion. If the deal was successful, solarCity expected to realize acost synergies of 20 percent of its capital expenditures although some investors believe 10 percent synergies would be more realistic. Necuase the deal was to be structured as a stock swap, The challenge was to calculate a fair exchange ratio. Tesla instructed Evercore to create a discounted cash flow analysis based on publicly available consensus estimates of the goldman sachs group, inc. and the institutional Brokers estimate system. These forecast assumed that solarCity had successfully reduced its market to equity ratio to 1:1 from 2017 onwards. At that time, the 30 year U.S treasury was 2.5 per cent. A market risk premium of 5 percent and a terminal growth rate of 4% percent were commonly used for the solar power industry. For SolarCity its beta was estimated between 1.95-2.40 from different sources. The cost of debt 6.8 percent much higher than the industry average of 5.8 percent due to high default risk, could drop to 6.5 percent in 2017 with a lower debt level. The expected tax rate would be 20 per cent when solarcity had stable taxable income. After the merger, SolarCity would be able to maintain more stable capital expenditure, depreciation and both banks felt that an offer of 0.082 tesla shared for each SolarCity share would be a good deal for the shareholders of both companies. This ratio was based on the analyst valuation of both tesla and SolarCity stocks, tesla was valued at 358.60 $ per share and all parties felt comfortable with this valuation. However, whether solarcitys share price of 29.35 with 35 percent premium, was a reasonable estimate was open to some debate. with the backing of credible third-party bank and the support of loyal tesla shareholders, Musk felt confident the deal would go through.

what would the WACC and terminal value of Solar City be, with the above information given?

2016 422 308 730 170 EXHIBIT 2: SOLARCITY INCOME STATEMENTS, 2014-2016 In millions of US$ (except for per share items) 2014 2015 Revenue: Operating leases and solar energy systems incentives 174 294 Solar energy systems and components sales 81 106 Total revenue 255 400 Cost of revenue: Solar energy systems sales and operating leases 79 114 Depreciation and amortization 98 167 Total cost of revenue 176 281 Gross profit 119 Operating expenses: Sales and marketing 239 457 General and administrative 156 245 Restructuring, Pre-production and other 0 0 Research and development 19 65 Total operating expenses 414 767 Loss from operations -336 -648 Interest expenses 66 118 Loss before income taxes -402 -765 Income tax benefit (provision) 27 -3 Net loss -375 -769 309 479 79 251 443 229 175 55 902 -650 170 -821 0 -820 Page 6 9B17N011 EXHIBIT 3: SOLARCITY BALANCE SHEETS, 2014-2016 2014 2015 2016 504.38 138.31 20.88 52.73 217.22 64.10 997.62 3,553.61 4,551.22 382.54 11.31 39.86 45.55 342.95 79.93 902.14 6,384.98 7,287.12 290.71 0.00 74.72 77.29 172.71 77.50 692.93 8,437.84 9,130.76 In millions of US$ (except for per share items) Assets Current assets: Cash and cash equivalents Short-term investments Restricted cash Accounts and Rebates receivable -net Inventories Prepaid expenses and other current assets Total current assets Long Term Assets Total assets Liabilities and equity Current liabilities: Accounts payable Current portion of financing obligation Total current liabilities Deferred revenue Long-term debt and Solar bonds, net of current portion Deferred U.S. Treasury grant income Other liabilities and deferred credits Total liabilities Common stock: Additional paid-in capital Accumulated deficit Total equity Total liabilities and equity 237.81 328.70 566.51 557.41 364.97 828.39 1,193.36 1,010.49 207.64 1,311.67 1,519.31 1,086.42 1,442.97 397.49 244.47 3,208.85 0.01 1,600.72 -258.36 1,342.37 4,551.22 2,402.93 382.28 563.51 5,552.56 0.01 2,051.23 -316.69 1,734.55 7,287,11 2,759.18 343.26 1,147.54 6,855.70 0.01 2,352.97 -77.92 2,275.06 9,130.76 EXHIBIT 4: SOLARCITY CASH FLOW STATEMENTS, 2014-2016 2014 2015 2016 -820.35 -375.23 11.07 0.95 -97.35 112.48 130.23 -217.85 -768.82 14.05 -11.05 -125.34 125.47 -24.20 -789.88 14.85 -32.95 170.58 -149.69 308.78 -508.78 -1,162.96 -22.89 -167.40 -1,665.64 -176.54 -44.59 -1,611.01 -62.90 0.00 In Millions of US$ (except for per share items) Operating activities: Net loss Depreciation, amortization and write-offs Accounts receivable Inventories Accounts payable Other Operating Activities Net cash used in operating activities Investing activities: Payments for the cost of solar energy systems, leased and to be leased Purchase of property, plant and equipment Purchases of short-term investments Proceeds from sales and maturities of short-term investments Acquisitions and Other investments Net cash used in investing activities Financing activities: Borrowings under long-term debt Repayments of long-term debt Other Financing Cash Flow Items Proceeds from investments by non-controlling interests and redeemable Distributions paid to non-controlling interests and redeemable Net cash provided by financing activities before equity and convertible Proceeds from Convertibles and Options Net cash provided by financing activities Net increase in cash and cash equivalents 28.76 -20.33 -1,344.81 170.74 -10.70 -1,726.73 11.24 -26.67 -1,689.33 369.80 -336.56 287.73 1,093.26 -215.93 342.03 1,376.18 -866.95 332.66 777.96 1,097.49 1,420.82 -117.13 -109.51 -148.86 982.15 507.82 1,489.97 -72.70 2,207.33 187.45 2,394.78 -121.84 2,113.85 -7.58 2,106.27 -91.83 2016 422 308 730 170 EXHIBIT 2: SOLARCITY INCOME STATEMENTS, 2014-2016 In millions of US$ (except for per share items) 2014 2015 Revenue: Operating leases and solar energy systems incentives 174 294 Solar energy systems and components sales 81 106 Total revenue 255 400 Cost of revenue: Solar energy systems sales and operating leases 79 114 Depreciation and amortization 98 167 Total cost of revenue 176 281 Gross profit 119 Operating expenses: Sales and marketing 239 457 General and administrative 156 245 Restructuring, Pre-production and other 0 0 Research and development 19 65 Total operating expenses 414 767 Loss from operations -336 -648 Interest expenses 66 118 Loss before income taxes -402 -765 Income tax benefit (provision) 27 -3 Net loss -375 -769 309 479 79 251 443 229 175 55 902 -650 170 -821 0 -820 Page 6 9B17N011 EXHIBIT 3: SOLARCITY BALANCE SHEETS, 2014-2016 2014 2015 2016 504.38 138.31 20.88 52.73 217.22 64.10 997.62 3,553.61 4,551.22 382.54 11.31 39.86 45.55 342.95 79.93 902.14 6,384.98 7,287.12 290.71 0.00 74.72 77.29 172.71 77.50 692.93 8,437.84 9,130.76 In millions of US$ (except for per share items) Assets Current assets: Cash and cash equivalents Short-term investments Restricted cash Accounts and Rebates receivable -net Inventories Prepaid expenses and other current assets Total current assets Long Term Assets Total assets Liabilities and equity Current liabilities: Accounts payable Current portion of financing obligation Total current liabilities Deferred revenue Long-term debt and Solar bonds, net of current portion Deferred U.S. Treasury grant income Other liabilities and deferred credits Total liabilities Common stock: Additional paid-in capital Accumulated deficit Total equity Total liabilities and equity 237.81 328.70 566.51 557.41 364.97 828.39 1,193.36 1,010.49 207.64 1,311.67 1,519.31 1,086.42 1,442.97 397.49 244.47 3,208.85 0.01 1,600.72 -258.36 1,342.37 4,551.22 2,402.93 382.28 563.51 5,552.56 0.01 2,051.23 -316.69 1,734.55 7,287,11 2,759.18 343.26 1,147.54 6,855.70 0.01 2,352.97 -77.92 2,275.06 9,130.76 EXHIBIT 4: SOLARCITY CASH FLOW STATEMENTS, 2014-2016 2014 2015 2016 -820.35 -375.23 11.07 0.95 -97.35 112.48 130.23 -217.85 -768.82 14.05 -11.05 -125.34 125.47 -24.20 -789.88 14.85 -32.95 170.58 -149.69 308.78 -508.78 -1,162.96 -22.89 -167.40 -1,665.64 -176.54 -44.59 -1,611.01 -62.90 0.00 In Millions of US$ (except for per share items) Operating activities: Net loss Depreciation, amortization and write-offs Accounts receivable Inventories Accounts payable Other Operating Activities Net cash used in operating activities Investing activities: Payments for the cost of solar energy systems, leased and to be leased Purchase of property, plant and equipment Purchases of short-term investments Proceeds from sales and maturities of short-term investments Acquisitions and Other investments Net cash used in investing activities Financing activities: Borrowings under long-term debt Repayments of long-term debt Other Financing Cash Flow Items Proceeds from investments by non-controlling interests and redeemable Distributions paid to non-controlling interests and redeemable Net cash provided by financing activities before equity and convertible Proceeds from Convertibles and Options Net cash provided by financing activities Net increase in cash and cash equivalents 28.76 -20.33 -1,344.81 170.74 -10.70 -1,726.73 11.24 -26.67 -1,689.33 369.80 -336.56 287.73 1,093.26 -215.93 342.03 1,376.18 -866.95 332.66 777.96 1,097.49 1,420.82 -117.13 -109.51 -148.86 982.15 507.82 1,489.97 -72.70 2,207.33 187.45 2,394.78 -121.84 2,113.85 -7.58 2,106.27 -91.83