1. What discount rate (weighted average cost of capital) should American Greetings use to analyze the cash flows?

• Use book value of debt as value of debt (Exhibit 45.6).
• Use market value of equity as value of equity (Exhibit 45.6).
• Use 10-year government bond yield as risk-free rate.

American Greetings Valuation Model: Bullish Scenario

(in millions of dollars)

	2011	2012	2013	2014	2015	Steady State
Revenue Growth	5.3%	1.0%	1.5%	2.0%	2.5%	3.0%	Bullish view (Exhibit 45.8)
Operating Margin	9.4%	9.0%	9.0%	9.0%	9.0%	9.0%	Bullish view (Exhibit 45.8)
NWC Turnover	5.02	6.00	6.50	7.00	7.50	7.50	Bullish view (Exhibit 45.8)
Fixed Assets Turnover	1.95	1.95	1.95	1.95	1.95	1.95	Bullish view (Exhibit 45.8)
Revenue	1,677						Exhibit 45.2
EBIT	157						Exhibit 45.2
NWC	334						Exhibit 45.3
Fixed Assets	859						Exhibit 45.3
NOPAT
- Increases in NWC
- Increases in Net Fixed Assets
Free Cash Flow
Terminal Value