Use the provided Business Valuation Model, and work through scenarios in which you change some of the assumptions (ticket sales growth, sponsorship revenue growth, wage increases, changes to the discount rate, etc.). Find the most sensitive assumptions, and how changes in certain assumptions drive different outcomes. The goal is for you to gain exposure with a full valuation model so that you can visualize some of the financial concepts we have worked through in previous weeks.

Submit a 1 page summary of assumptions and results that you discovered were the most sensitive (i.e. - had the most significant impact resulting from minor changes to the assumptions), and anything else you want to highlight from your discoveries.

Favorite Team, Inc.

Business Valuation - Discounted Cash Flow Template

YearYearYearYearYear

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Business Assumptions

Ticket sales $ 50,000,000 $ 52,000,000 $ 54,080,000 $ 56,243,200 $ 58,492,928Ticket revenue growth rate4.0%

Television and radio broadcast revenues $ 75,000,000 $ 76,875,000 $ 78,796,875 $ 80,766,797 $ 82,785,967Broadcast revenue growth rate2.5%

Sponsorship revenues $ 10,000,000 $ 10,500,000 $ 11,025,000 $ 11,576,250 $ 12,155,063Sponsorship revenue growth rate5.0%

Concession revenues $ 2,500,000 $ 2,575,000 $ 2,652,250 $ 2,731,818 $ 2,813,772Other misc. revenue growth rate3.0%

Other miscellaneous revenues $ 500,000 $ 515,000 $ 530,450 $ 546,364 $ 562,754

Player expense growth rate4.0%

Total revenues $ 138,000,000 $ 142,465,000 $ 147,084,575 $ 151,864,428 $ 156,810,484Operating expense growth rate5.0%

General & administrative expense growth rate3.0%

Player expenses $ (80,000,000) $ (83,200,000) $ (86,528,000) $ (89,989,120) $ (93,588,685)

Team operating expenses $ (15,000,000) $ (15,750,000) $ (16,537,500) $ (17,364,375) $ (18,232,594)Other income/expense growth rate2.0%

Practice facility operating expenses $ (1,000,000) $ (1,050,000) $ (1,102,500) $ (1,157,625) $ (1,215,506)Capital expenditure growth rate4.0%

Game operations & arena expenses $ (10,000,000) $ (10,500,000) $ (11,025,000) $ (11,576,250) $ (12,155,063)

Ticket sales expenses $ (2,000,000) $ (2,100,000) $ (2,205,000) $ (2,315,250) $ (2,431,013)Valuation AssumptionsSee Chapter 11 for further explanation

Marketing & advertising expenses $ (200,000) $ (210,000) $ (220,500) $ (231,525) $ (243,101)Debt-to-equity ratio20.0%

Public & media relations expenses $ (150,000) $ (157,500) $ (165,375) $ (173,644) $ (182,326)

Community relations expenses $ (500,000) $ (525,000) $ (551,250) $ (578,813) $ (607,753)Risk-free rate of return3.0%

Depreciation & amortization expenses $ (800,000) $ (840,000) $ (882,000) $ (926,100) $ (972,405)Expected rate of return on equity8.0%

General & administrative expenses $ (9,000,000) $ (9,270,000) $ (9,548,100) $ (9,834,543) $ (10,129,579)Beta 1.20

Total operating expenses $(118,650,000) $(123,602,500) $(128,765,225) $(134,147,244) $(139,758,024)Effective interest rate on debt6.0%

Marginal corporate tax rate (blended)40.0%

INCOME FROM OPERATIONS: $ 19,350,000 $ 18,862,500 $ 18,319,350 $ 17,717,184 $ 17,052,459

Cost of debt3.6%

Interest income $ 1,000,000 $ 1,020,000 $ 1,040,400 $ 1,061,208 $ 1,082,432Cost of equity9.0%

Gain (loss) on investments $ 500,000 $ 510,000 $ 520,200 $ 530,604 $ 541,216

Interest expense $ (3,000,000) $ (3,060,000) $ (3,121,200) $ (3,183,624) $ (3,247,296)

Income tax expenses $ (5,000,000) $ (5,100,000) $ (5,202,000) $ (5,306,040) $ (5,412,161)Discount rate (weighted-average cost of capital)7.9%

Terminal period growth rate3.0%

Total other income (expense) $ (6,500,000) $ (6,630,000) $ (6,762,600) $ (6,897,852) $ (7,035,809)Capitalization rate4.9%

NET INCOME (LOSS) $ 12,850,000 $ 12,232,500 $ 11,556,750 $ 10,819,332 $ 10,016,650Revenue valuation multiple1.5

EBITDA valuation multiple10.0

Reconciliation to net cash flows:

Capital expenditures $ (1,000,000) $ (1,040,000) $ (1,081,600) $ (1,124,864) $ (1,169,859)

Depreciation & amortization expenses $ 800,000 $ 840,000 $ 882,000 $ 926,100 $ 972,405

Gain (loss) on investments $ (500,000) $ (510,000) $ (520,200) $ (530,604) $ (541,216)

NET CASH FLOW $ 12,150,000 $ 11,522,500 $ 10,836,950 $ 10,089,964 $ 9,277,981

Present Value of Cash Flows $ 11,258,340 $ 9,893,338 $ 8,621,866 $ 7,438,440 $ 6,337,877

Terminal value: $ 132,683,189

Present Value of Future Cash Flows: $ 176,233,049Income approach - discounted cash flows

Informational only: alternative valuation approaches

Multiple of revenues $ 207,000,000Market approach

Multiple of EBITDA $ 216,500,000Market approach