use the assumptions to fill out the DCF

ASSUMPTIONS Actual 2009 DCF Matrix Case Exercise (Acquiring Company is Valuing Targe Projections 2018 2010 2011 2012 2013 2014 2015 2016 2017 2019 50.80% -2.00% 3.60% Assumptions: Sales Growth Rate % Operating Margin % of Sales Depreciation Exp. % of Sales Marginal Tax Rate % Net Non Cash Working Capital % of Sales Gross P&E % of Sales WACC (2010-2019) %5 WACC (Terminal Period) %* Terminal Period Growth Rate % Working Capital (SMil) Cash? Non Cash Working Capital 45.00% -1.00% 3.40% 40.00% 11.40% 5.00% 9.31% 8.50% 3.00% 40.00% -1.00% 6.00% 40.00% 10.00% 8.00% 40.00% 2.00% 6.00% 40.00% 10.00% 8.00% 40.00% 4.00% 6.00% 40.00% 10.00% 8.00% 35.00% 30.00% 25.00% 8.00% 10.00% 12.00% 6.00% 6.00% 7.00% 40.00% 40.00% 40.00% 10.00% 10.00% 10.00% 8.00% 8.00% 7.00% 20.00% 15.00% 7.00% 40.00% 10.00% 7.00% 10.00% 15.00% 7.00% 40.00% 10.00% 6.00% 10.00% 15.00% 6.00% 40.00% 10.00% 6.00% 10.40% 8.70% $112.80 $98.70 $17.47 Selected Financial Data ($Mil.) Sales Depreciation Expense & Amort. Gross Plant & Equipment $168.00 $6.10 $14.60 Deferred Tax Assets Funded Debte Number of Shares Outstanding $73.10 $22.00 61.80 EXPLANATORY NOTES: NOTE: ACQUIRER /large profitable firm) buys TARGET (high grorth software tech firmi 'Includes depreciation & amortization expense 2A 40% marginal tax rate is used as acquirer is extremely profitable Net Non Cash Working Capital' excludes target cash balances. *Capital Expenditures increases faster than depreciation through 2015 to support growth of sales and than scales down for the remainder of the forecast period. SWACC 2010 - 2019: Cost of equity = 0.0265 + 1.3145 (0.055), where 0.0265 is the 10 year Treasury bond at the time of the transaction, 1.3145 is target's beta, and 0.055 is the market premium. Cost of Debt = 7%. Capital structure: 90% equity & 10% debt WACC Terminal Period: comparable firms 'Cash & marketable securities * Acquirer is profitable and can use all the deferred income tax debits 'Funded Debt: Interest baring debt MODIFIED FROM MERGERS & ACQUISITIONS & OTHER RESTRUCTURING ACTIVITIES. Donald'A. DePamphilis, fth Edition Academic Press Case, 3 4 5 6 7 8 9 10 DCF CASE EXERCISE MATRIX 2 HISTORICA LAVE ASSUMPTION 2010 2011 REVENUE ACT REY 200: $ 168.00 Z REVENUE GROWTH 56.807 2012 2013 2014 2015 2016 2017 2018 2019 OPERATING MARGINS (INCLUDES DEPRECIATION) 2 OF REVENUE -2.00% EBIT TAXES 2 OFERT A) EBIT (1-TAX)or NOPAT 1) DEPRECIATION 2 OF REVENUE 3.60% 2) CAPEX 2 OF REVENUE 3) NON-CASH WORKING CAPITAL 96 TV-412 B) FCFF PV YR by YR WACC 1) PV (2009-2119) Terminal Growth Rate/WACCTV 2) PV of Terminal Value Net deferred Tax Assets c) VALUE OF FIRM FUNDED DEBT CASH c) VALUE OF FIRM Number of Shares Outstanding E) PRICE PER SHARE 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 NON CASH WORKING CAPITAL ACTUAL 2009 REVENUE 168.00 RATIO OF ADJUSTED NON- CASH WORKING CAPITAL 10. 40 WORKING CAPITAL 17.47 CHANGE IN NET WORKING CAPITAL ASSUMPTIONS Actual 2009 DCF Matrix Case Exercise (Acquiring Company is Valuing Targe Projections 2018 2010 2011 2012 2013 2014 2015 2016 2017 2019 50.80% -2.00% 3.60% Assumptions: Sales Growth Rate % Operating Margin % of Sales Depreciation Exp. % of Sales Marginal Tax Rate % Net Non Cash Working Capital % of Sales Gross P&E % of Sales WACC (2010-2019) %5 WACC (Terminal Period) %* Terminal Period Growth Rate % Working Capital (SMil) Cash? Non Cash Working Capital 45.00% -1.00% 3.40% 40.00% 11.40% 5.00% 9.31% 8.50% 3.00% 40.00% -1.00% 6.00% 40.00% 10.00% 8.00% 40.00% 2.00% 6.00% 40.00% 10.00% 8.00% 40.00% 4.00% 6.00% 40.00% 10.00% 8.00% 35.00% 30.00% 25.00% 8.00% 10.00% 12.00% 6.00% 6.00% 7.00% 40.00% 40.00% 40.00% 10.00% 10.00% 10.00% 8.00% 8.00% 7.00% 20.00% 15.00% 7.00% 40.00% 10.00% 7.00% 10.00% 15.00% 7.00% 40.00% 10.00% 6.00% 10.00% 15.00% 6.00% 40.00% 10.00% 6.00% 10.40% 8.70% $112.80 $98.70 $17.47 Selected Financial Data ($Mil.) Sales Depreciation Expense & Amort. Gross Plant & Equipment $168.00 $6.10 $14.60 Deferred Tax Assets Funded Debte Number of Shares Outstanding $73.10 $22.00 61.80 EXPLANATORY NOTES: NOTE: ACQUIRER /large profitable firm) buys TARGET (high grorth software tech firmi 'Includes depreciation & amortization expense 2A 40% marginal tax rate is used as acquirer is extremely profitable Net Non Cash Working Capital' excludes target cash balances. *Capital Expenditures increases faster than depreciation through 2015 to support growth of sales and than scales down for the remainder of the forecast period. SWACC 2010 - 2019: Cost of equity = 0.0265 + 1.3145 (0.055), where 0.0265 is the 10 year Treasury bond at the time of the transaction, 1.3145 is target's beta, and 0.055 is the market premium. Cost of Debt = 7%. Capital structure: 90% equity & 10% debt WACC Terminal Period: comparable firms 'Cash & marketable securities * Acquirer is profitable and can use all the deferred income tax debits 'Funded Debt: Interest baring debt MODIFIED FROM MERGERS & ACQUISITIONS & OTHER RESTRUCTURING ACTIVITIES. Donald'A. DePamphilis, fth Edition Academic Press Case, 3 4 5 6 7 8 9 10 DCF CASE EXERCISE MATRIX 2 HISTORICA LAVE ASSUMPTION 2010 2011 REVENUE ACT REY 200: $ 168.00 Z REVENUE GROWTH 56.807 2012 2013 2014 2015 2016 2017 2018 2019 OPERATING MARGINS (INCLUDES DEPRECIATION) 2 OF REVENUE -2.00% EBIT TAXES 2 OFERT A) EBIT (1-TAX)or NOPAT 1) DEPRECIATION 2 OF REVENUE 3.60% 2) CAPEX 2 OF REVENUE 3) NON-CASH WORKING CAPITAL 96 TV-412 B) FCFF PV YR by YR WACC 1) PV (2009-2119) Terminal Growth Rate/WACCTV 2) PV of Terminal Value Net deferred Tax Assets c) VALUE OF FIRM FUNDED DEBT CASH c) VALUE OF FIRM Number of Shares Outstanding E) PRICE PER SHARE 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 NON CASH WORKING CAPITAL ACTUAL 2009 REVENUE 168.00 RATIO OF ADJUSTED NON- CASH WORKING CAPITAL 10. 40 WORKING CAPITAL 17.47 CHANGE IN NET WORKING CAPITAL