1. WACCis11.17
2. TaxRateis22.2%
3. Free Cash Flow is 17,724,000
   2. Conductatwo-stagevaluation
      • Youcannowcombinethetwoitemsabovetoestimateapresentvalueofthefirm.Youshouldcalculateahigh-growthphasevalueandaterminalvalue.
        2. HighGrowthPhaseValue:Forthisphase,assumethatinyears1-3theFreeCashFlowsaregrowingby8%annually.
        3. TerminalValue:ForthisphaseassumetheFCFgrowataconstantgrowthrateof2.5%.
      • Calculatethepresentvaluesoftheabovephasesandaddthemtogetherforthetotalpresentvalueofthecompany.
4. Comparison to Current Market Capitalization:
   1. On theKey Statisticspage in Yahoo! Finance identify and indicate theMarket Capitalization("market cap"). What does this value represent?
   2. Compare the market cap to your calculated value.
      • To compare the market cap from Yahoo! Finance to the firm value you calculated in the previous section above you need to first subtract the value of the debt from your firm value calculation.
      • How does your intrinsic value (less debt) compare to the market cap of the company on Yahoo! Finance?
      • What might account for any differences between these two values?
5. Conduct a Sensitivity Analysis:
   1. Vary the following inputs to the two-tier valuation model and indicate the new valuation amount and the percentage change from the above "base" case.
      • Free Cash Flows
        1. Increase the FCF by 10%
        2. Decrease the FCF by 10%
      • Terminal Growth Rate
        1. Increase the Terminal Growth Rate from 2.5% to 3.5%
        2. Decrease the Terminal Growth Rate from 2.5% to 1.5%
      • WACC
        1. Add 2% to the WACC (that is if the WACC is 7.5% make it 9.5%)
        2. Subtract 2% from the WACC (that is if the WACC is 7.5% make it 5.5%)
   2. Observations
      • State your observations from the sensitivity analysis. How important (conceptually) is the terminal growth rate to overall value? How important is the WACC to overall value?