What was the intrinsic value of Facebook share price during their IPO in 2012. Calculate and show all work in Excel. How does the valuation compare to price talk from underwriter?

VALUATION OF FACEBOOK, BASED ON PROF. ASWATH DAMODARAN 2011 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Terminal DCF

Base year 1 2 3 4 5 6 7 8 9 10 year Assumptions: Revenue growth rate 40.0% 40.0% 40.0% 40.0% 40.0% 32.4% 24.8% 17.2% 9.6% 2.0% 2.0% EBIT (Operating) margin 45.7% 44.6% 43.5% 42.5% 41.4% 40.3% 39.3% 38.2% 37.1% 36.1% 35.0% 35.0% Tax rate 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 39.0% 38.0% 37.0% 36.0% 35.0% 35.0% Increase in CAPEX + WC as % of sales 67% 67% 67% 67% 67% 67% 67% 67% 67% 67% 100% Cost of capital 11.1% 11.1% 11.1% 11.1% 11.1% 10.4% 9.8% 9.2% 8.6% 8.0% 8.0% 67% 67% 67% 67% 67% 67% 67% 67% 67% 67% 100% Free cash flow to firm ($ millions): Revenues 3,711 5,195 7,274 10,183 14,256 19,959 26,425 32,979 38,651 42,362 43,209 44,073 EBIT 1,695 2,318 3,167 4,325 5,903 8,051 10,377 12,599 14,353 15,279 15,123 15,426 EBIT(1-tax) 1,017 1,391 1,900 2,595 3,542 4,830 6,330 7,811 9,042 9,778 9,830 10,027 Increase in CAPEX + WC 995 1,392 1,949 2,729 3,821 4,333 4,391 3,800 2,486 568 864 FCFF 396 508 646 813 1,010 1,997 3,420 5,242 7,292 9,262 9,162 Terminal value 152,707 Present value: Cumulative discount factor 0.9004 0.8107 0.7300 0.6573 0.5918 0.5358 0.4878 0.4466 0.4112 0.3808 0.3808 PV of FCFF and TV 357 412 471 534 598 1,070 1,669 2,341 2,999 3,527 58,146 Value of firm 72,122.8 - Debt 1,587.0 + Excess Cash 2,000.0 Value of equity 72,535.8 - Cost of equity options (after tax) 3,088.5 WACC Equity Debt Preferred Capital Value of common equity 69,447.4 Market values $74,407.8 $1,587.0 $- $75,994.8 Pre-IPO number of shares (millions) 1,958.1 Weights in WACC 97.9% 2.1% 0.0% 100.0% Estimated value /share $35.47 Cost of Component 11.2% 2.4% 7.1% 11.1% Price talk $38.00 Price as % of value 107% Assumtions ( in $ millions) This year Revenues $3,711.0 Operating income or EBIT $1,695.0 Book value of equity $5,228.0 Book value of debt $1,587.0 Excess Cash $2,000.0 Pre-IPO number of shares (millions) 1,958.1 Current stock price $38.00 Effective tax rate (last 3 years) 40.00% Marginal tax rate 35.00% The value drivers below: Compounded annual revenue growth rate over next 5 years 40.00% Target pre-tax operating margin (EBIT as % of sales in year 10) 35.00% Sales to capital ratio (for computing reinvestment) 1.50 Market numbers Riskfree rate 2.0% Initial cost of capital 11.1% Cost of capital after year 10 8.0% Estimation of Current Cost of Capital Equity Pre-IPO Shares outstanding 1958.1 Current Market Price per share $38.00 Industry avg unlevered beta 1.52 Riskfree Rate 2.0% Equity Risk Premium 6.00% Levered Beta for equity 1.54 Debt Pre-tax Cost of Debt 3.65% Marginal tax rate 35% Preferred Stock Number of Preferred Shares 0 Current Market Price per Share 70 Annual Dividend per Share 5