The Free Cash Flow Business Valuation Model

Instructions: Change any of the forecasting variables shown in red below and observe the effect on the model's outputs in
the section below. To what variable is the business value conclusion most sensitive? To what variable is it least sensitive?

The Discounted Free Cash Flow Model for a Complete Business

Gateway Capital LLC

Forecasting Variables:
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Revenue growth factor 80% 65% 55% 50% 40% 35% 29% 28% 27% 25%
Expected gross profit margin 98% 96% 96% 94% 93% 93% 92% 92% 91% 89%
S, G, & A expense % of revenue 30% 35% 30% 28% 25% 23% 20% 18% 20% 20%
Depr. & Amort. % of revenue 2% 2% 2% 3% 3% 3% 4% 4% 4% 5%
Capital expenditure growth factor 5% 5% 5% 5% 6% 6% 6% 7% 7% 7%
Net working capital to sales ratio 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%

Income tax rate 20%

Assumed long-term sustainable growth rate 15% per year after 2028
Discount rate 35.0%

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Valuation Model Outputs:
Gross profit margin 98% 96% 96% 94% 93% 93% 92% 92% 91% 89%
Net operating profit margin 66% 59% 64% 63% 65% 67% 68% 70% 67% 64%
Free cash flow ($ mil) $0.40 $0.57 $0.9 $1.4 $1.9 $2.66 $3.49 $4.57 $5.56 $6.74
Terminal value ($ mil) $38.8

PV of Company Operations ($ mil) $3.8

Market Value of Company Assets ($ mil) $3.8

 The Discounted Free Cash Flow Model for a Complete Business

Gateway Capital LLC

Years Ending December 31
Actual |------------------------------------------------------------------------------------------ Forecast ----------------------------------------------------------------------------------------|
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Total revenue $274,601 $494,282 $815,565 $1,264,126 $1,896,189 $2,654,664 $3,583,797 $4,623,098 $5,917,566 $7,515,308 $9,394,136

Cost of Goods Sold 5,492 9,886 32,623 50,565 113,771 185,827 250,866 369,848 473,405 676,378 1,033,355
Gross profit 269,109 484,396 782,942 1,213,561 1,782,418 2,468,837 3,332,931 4,253,250 5,444,161 6,838,930 8,360,781

Selling, general and administrative expenses 54,920 148,285 285,448 379,238 530,933 663,666 824,273 924,620 1,065,162 1,503,062 1,878,827
Earnings before interest, taxes, depr. & amort. (EBITDA) 214,189 336,111 497,494 834,323 1,251,485 1,805,171 2,508,658 3,328,630 4,378,999 5,335,868 6,481,954

Depreciation and amortization 5,492 9,886 16,311 25,283 56,886 79,640 107,514 184,924 236,703 300,612 469,707
Earnings before Interest and taxes (EBIT) 208,697 326,225 481,183 809,040 1,194,599 1,725,531 2,401,144 3,143,706 4,142,296 5,035,256 6,012,247
Available tax-loss carryforwards 0 0 0 0 0 0 0 0 0 0 0
Net taxable earnings 208,697 326,225 481,183 809,040 1,194,599 1,725,531 2,401,144 3,143,706 4,142,296 5,035,256 6,012,247

Federal and State Income Taxes 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5%

Net Operating Profit After-Tax (NOPAT) 208,697 326,225 481,183 809,040 1,194,599 1,725,531 2,401,144 3,143,706 4,142,296 5,035,256 6,012,247

Add back depreciation and amortization 5,492 9,886 16,311 25,283 56,886 79,640 107,514 184,924 236,703 300,612 469,707
Subtract Capital Expenditures 40,000 42,000 44,100 46,305 48,620 51,537 54,630 57,907 61,961 66,298 70,939
Subtract New Net Working Capital 21,968 32,128 44,856 63,206 75,848 92,913 103,930 129,447 159,774 187,883
Free Cash Flow $254,189 $400,079 $573,722 $925,484 $1,363,311 $1,932,556 $2,656,201 $3,490,468 $4,570,406 $5,561,941 $6,740,775

Terminal value in 2028 $38,759,456

Present Value of Free Cash Flows @ Discount Rate 296,355 314,800 376,156 410,450 430,986 438,792 427,117 414,271 373,441 335,253

Total Present Value of Company Operations $3,817,621

Plus Current Assets 0

Total Market Value of Great Expectations' Assets $3,817,621

Average Revenue per whole life insurance 6000 12 months Premium
Average Revenue per Savings Plan 3000 3.4% of Lifetime Value
Average Revenue per term insurance 1000
Average Revenue per PMS 10737 (2%+0.75 Trail)
Average Revenue per private banking accoun 25000
Average Revenue per Beehive 2703
Average Revenue per Sundaram/Dollar 2000
Average Revenue per Loan 20000
Average Revnue for Big Product 15000
Average Revenue for MOIF 10000
Jumbo 50000 12 month premium

Total 274601 22883

 Total Revenue USD
No. of Whole life plans 4 24000 PMS Revenue NPV $10,737.29
No. of Savings Plans 2 6000
No. of Term Insurance 6 6000 Growth Rate 18%
No. of PMS 8 85898
No. of Private Banking 2 50000
No. of Beehive Deals 1 2703
No. of Sundaram/Dollar 5 10000
No. of Loans/Trade Finance 0 0
No. of 'Big Product' 2 30000
No. of MOIF 1 10000
No. of Jumbo 1 50000
Private bank Ticket size
Leverage(as % of Input)
Total

Sundaram Ticket Size

Profit

Loan Size
 USD
5000000 1538 14531.52
5900000 681
6962000 803
8215160 948
9693889 1119
11438789 1320
13497771 1557
15927370 1838
18794296 2169
22177269 2559

500000
100%
25000

50000
2000

1000000