Revenues Weight Risk Premium North America 17.5 24.82% 4.00% South America 4.3 6.10% 12.

00% Switzerland 1.1 1.56% 4.00% Germany/France/UK 18.4 26.10% 4.00% Italy/Spain 6.4 9.08% 5.50% Asia 5.8 8.23% 9.00% Rest of W. Europe 13 18.44% 4.00% Eastern Europe 4 5.67% 8.00% Total 70.5 100.00% 5.26%

Two-Stage FCFE Discount Model

Two-Stage FCFE Discount Model

This model is designed to value the equity in a firm, with two stages of growth, an initial period of higher growth and a subsequent period of stable growth.
Assumptions 1. The firm is expected to grow at a higher growth rate in the first period. 2. The growth rate will drop at the end of the first period to the stable growth rate. 3. The free cashflow to equity is the correct measure of expected cashflows to stockholders. The user has to define the following inputs: 1. Length of high growth period 2. Expected growth rate in earnings during the high growth period. 3. Capital Spending, Depreciation and Working Capital needs during the high growth period. 4. Expected growth rate in earnings during the stable growth period. 5. Inputs for the cost of equity.
0.375

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Inputs to the model

Current Earnings per share = $105.50 (in currency) (in currency) (in currency) (in currency) (in currency) Current Dividends per share = $38.00 Current Capital Spending/sh = $114.21 Current Depreciation / share = $73.84 Current Revenues/ share = Working Capital/ share = Chg. Working Capital/share = $1,820.48 $169.24 $7.07 5 No (in years) (Yes or No) (in percent) 0.85 4.00% 5.26% (in percent) (in percent)

Enter length of extraordinary growth period = Do you want to enter cost of equity directly? If yes, enter the cost of equity = If no, enter the inputs to the cost of equity Beta of the stock = Riskfree rate= Risk Premium= Earnings Inputs Do you want to use the historical growth rate? If yes, enter EPS from five years ago = Do you have an outside estimate of growth ? If yes, enter the estimated growth:

Yes $67.08 Yes 9.35%

(Yes or No) (in currency) (Yes or No) (in percent) Yes (Yes or No)

Do you want to calculate the growth rate from fundamentals? If yes, enter the following inputs: Net Income Currently = Book Value of Debt = Book Value of Equity = Tax Rate on Income= $4,291.00 $12,906.00 $21,423.00 31.00%

(in currency) (in currency) (in currency) (in currency) (in percent)

Interest Expense Currently = $1,666.00

The following will be the inputs to the fundamental growth formulation:

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ROA = Retention =

15.85% 63.98%

D/E = Interest Rate=

60.24% 12.91%

(in percent) (in percent) (Yes or No)

Do you want to change any of these inputs for the high growth period? Yes If yes, specify the values for these inputs (Please enter all variables) ROA = Retention = 15.85% 63.98% D/E = Interest Rate= 60.24% 4.25% (in percent) (in percent)

23.63%

Specify weights to be assigned to each of these growth rates: Historical Growth Rate = Outside Prediction of Growth = Fundamental Estimate of Growth = Enter growth rate in stable growth period? Beta Will the beta to change in the stable period? If yes, enter the beta for stable period = No 1 (Yes or No) 0.00% 0.00% 100.00% 4.00% (in percent) (in percent) (in percent) (in percent)

Capital Spending, Depreciation & Working Capital Do you want all these items to grow at the same rate as earningsYes ? If not, enter the growth rates for each of the following items: Capital SpendingDepreciation High Growth
20%

(Yes or No)

Revenues 18% 6% (in percent) (in percent)

20% Do not enter

Stable Growth Do not enter

Do you want to keep the current fraction of working capital to revenues? Yes (Yes or No) Specify working capital as a percent of revenues:40% (in percent) (Yes or No)

Do you want to use the current debt ratio as your desired mix? Yes If no, enter the following inputs for financing mix, Desired debt financing proportion - Capital Spending Desired debt financing proportion - Working Capital (in percent) (in percent)

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Two-Stage FCFE Discount Model

Capital spending and Depreciation during Stable Growth Is capital spending to be offset by depreciation in stable period? No If no, enter capital expenditures as % of depreciation in stable growth 150% (Yes or No) (in percent)

Before reviewing the output, check to see if any warnings appear on the next page.

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Two-Stage FCFE Discount Model

Warnings

Capital Spending exceeds depreciation by a significant factor

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Two-Stage FCFE Discount Model

Output from the program

Cost of Equity = 8.47% 37.60% 37.60% $105.50 $25.19 $4.41 $75.90

Proportion of Debt: Capital Spending (DR)= Proportion of Debt: Working Capital (DR)= Current Earnings per share= (Capital Spending - Depreciation)*(1-DR) Change in Working Capital * (1-DR) Current FCFE Growth Rate in Earnings per share Growth Rate Historical Growth = Outside Estimates = Fundamental Growth = Weighted Average 9.48% 9.35% 15.12% 15.12%

Weight 0.00% 0.00% 100.00% 0.232258065

Growth Rate in capital spending, depreciation and working capital High Growth Stable Growth Growth rate in capital spending = 15.12% Growth rate in depreciation = Growth rate in revenues = 15.12% 15.12% 4.00% 4.00% 4.00% 9.30% 2 $139.81 $33.39 $18.38 $88.04 $74.83 (in percent) 3 $160.95 $38.43 $21.16 $101.35 $79.41 4 $185.28 $44.24 $24.36 $116.68 $84.28

Working Capital as percent of revenues = 1 Earnings $121.45 - (CapEx-Depreciation)*(1-DR)$29.00 -Chg. Working Capital*(1-DR) $15.97 Free Cashflow to Equity Present Value $76.48 $70.51

The FCFE for the high growth phase are shown below (upto 6 years)

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Growth Rate in Stable Phase = FCFE in Stable Phase = Cost of Equity in Stable Phase = Price at the end of growth phase =

4.00% $164.84 8.47% $3,686.87 $398.48 $2,455.21 $2,853.70

Present Value of FCFE in high growth phase = Present Value of Terminal Price = Value of the stock =

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Estimating the value of growth

Value of assets in place = Value of stable growth = Value of extraordinary growth = Value of the stock = $895.94 $869.46 $1,088.29 $2,853.70

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Two-Stage FCFE Discount Model

Model

wo stages of growth, an initial of stable growth.

to stockholders.

gh growth period.

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Two-Stage FCFE Discount Model

0.112068966 0.8510512

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Two-Stage FCFE Discount Model

5 $213.29 $50.93 $28.04 $134.32 $89.45

Terminal Year $221.82 $48.44 $8.54 $164.84

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erminal Year

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