General FCFF Discount Model

A General FCFF Valuation Model

An n-stage Model
This model is designed to value a firm, with changing margins, revenue growth,
and other parameters.

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 capital. (Cost of equity, Cost of debt, Weights on debt and equity)

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Inputs to the model

Current EBIT = ($1,396.00) (in currency)
Current Net Income = ($1,667.00) (in currency)
Current Dividends = $0.00 ( in currency)
Current Interest Expense = $390.00 (in currency)
Current Capital Spending $4,289.00 (in currency)
Current Depreciation = $1,381.00 (in currency)
Tax Rate on Income = 35.00% (in percent)
Current Revenues = $3,789.00 ( in currency)
Current Working Capital = ($110.50) (in currency)
Chg. Working Capital = ($63.00) (in currency)
Cash and Non-operating assets = $1,477.00
Book Value of Debt = $7,271.00 ( in currency)
Book Value of Equity = $15,807.00 (in currency)
NOL carried forward = $2,075.00

Weights on Debt and Equity

Is the firm publicly traded ? Yes ( Yes or No)

If yes, enter the market price per share = $12.57 (in currency)
& Number of shares outstanding = 886.47 (in #)
& Market Value of Debt = $7,271.00 ( in currency)

If no, do you want to use the book value debt ratio ? (Yes or No)
If no, enter the debt to capital ratio to be used = (in percent)

Enter length of extraordinary growth period = 10 (in years)

Costs of Components
Do you want to enter cost of equity directly? No (Yes or No)
If yes, enter the cost of equity = (in percent)
If no, enter the inputs to the cost of equity

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Beta of the stock = 2

Riskfree rate= 5.40% (in percent)
Risk Premium= 4.00% (in percent)

Enter the cost of debt for cost of capital calculation 8.90% ( in percent)

Earnings Inputs
Please enter year-specific inputs for each of the following variables:
Year Growth Rate in EBITDA/Revenue Growth Rate in Growth Rate in Working Capital
Revenue Capital Spending Depreciation as % of Revenue
1 0.00% 0% -20% 10% 3.00%
2 30.00% 7.50% -50% 10% 3.00%
3 25.00% 15.00% -50% 10% 3.00%
4 20.00% 22.50% -50% 10% 3.00%
5 10.00% 30.00% 5% -50% 3.00%
6 10.00% 30.60% 5% -50% 3.00%
7 10.00% 31.20% 5% 5% 3.00%
8 8.00% 31.80% 5% 5% 3.00%
9 6.00% 32.40% 5% 5% 3.00%
10 5.00% 33.00% 5% 5% 3.00%
Compounded Avg 8%
Enter growth rate in stable growth period 5.00% (in percent)
Enter EBITDA as % of Revenue in stable phase 33.00% (in percent)
Enter Working Capital as % of Revenue in stable phase 3.00% (in percent)

Will the beta change in the stable period? Yes (Yes or No)
If yes, enter the beta for stable period = 1.00

Do you want to change the debt ratio in the stable growth period? No (Yes or No)
If yes, enter the debt ratio for the stable growth period = 15% (in percent)

Will the cost of debt change in the stable period? Yes (Yes or No)

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If yes, enter the new cost of debt = 8.00% ( in percent)

Capital Spending and Depreciation in Stable growth period

Do you want to compute the reinvestment rate in stable growth from fundamentals? Yes (Yes or No)
If yes, enter the return on capital in stable growth = 9%

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If no, enter capital expenditures as % of depreciation in steady state: 110% (in percent: > 100%)

Output from the program

Cost of Equity = 13.40%
Equity/(Debt+Equity ) = 60.51%
After-tax Cost of debt = 5.79%
Debt/(Debt +Equity) = 39.49%
Cost of Capital = 10.39%

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1 2 3 4 5
Revenues $3,789.00 $4,925.70 $6,157.13 $7,388.55 $8,127.41
- Operating Expenses $3,789.00 $4,556.27 $5,233.56 $5,726.13 $5,689.18
EBITDA $0.00 $369.43 $923.57 $1,662.42 $2,438.22
- Depreciation $1,519.10 $1,671.01 $1,838.11 $2,021.92 $1,010.96
EBIT ($1,519.10) ($1,301.58) ($914.54) ($359.50) $1,427.26
- EBIT*t $0.00 $0.00 $0.00 $0.00 $0.00
EBIT (1-t) ($1,519.10) ($1,301.58) ($914.54) ($359.50) $1,427.26
+ Depreciation $1,519.10 $1,671.01 $1,838.11 $2,021.92 $1,010.96
- Capital Spending $3,431.20 $1,715.60 $857.80 $428.90 $450.35
- Chg. Working Capital $0.00 $34.10 $36.94 $36.94 $22.17
Free CF to Firm ($3,431.20) ($1,380.27) $28.83 $1,196.58 $1,965.71
Present Value ($3,073.92) ($1,107.79) $20.73 $770.77 $1,134.36
NOL $3,594.10 $4,895.68 $5,810.22 $6,169.72 $4,742.46
Index 0 0 0 0 0

Cost of Capital Computation

Tax Rate 0% 0% 0% 0% 0%
Beta 2.00 2.00 2.00 2.00 2.00
Cost of Equity 13.40% 13.40% 13.40% 13.40% 13.40%
Cost of Debt 8.90% 8.90% 8.90% 8.90% 8.90%
Debt Ratio 39.49% 39.49% 39.49% 39.49% 39.49%
Cost of Capital 11.62% 11.62% 11.62% 11.62% 11.62%
Cum. WACC 1.11623 1.24597 1.39079 1.55245 1.73289

Growth Rate in Stable Phase = 5.00%

FCFF in Stable Phase = $996.92
Cost of Equity in Stable Phase = 9.40%
Equity/ (Equity + Debt) = 60.51%
AT Cost of Debt in Stable Phase = 5.20%
Debt/ (Equity + Debt) = 39.49%

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Cost of Capital in Stable Phase = 7.74%

Value at the end of growth phase = $36,362.96

Present Value of FCFF in high growth phase = $2,446.42

Present Value of Terminal Value of Firm = $13,470.92
Value of the firm = $15,917.34
+ Cash and Marketable Securities = $1,477.00
Market Value of Debt = $7,271.00
Market Value of Equity = $10,123.34
Value of Options Outstanding (See option worksheet) = #VALUE!
Value of Equity in Common Stock = #VALUE!
Value of Equity per Share = #VALUE!

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el

ns, revenue growth,

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cent: > 100%)

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6 7 8 9 10 Terminal Year
$8,940.15 $9,834.16 $10,620.89 $11,258.15 $11,821.05 $12,412.11
$6,204.46 $6,765.90 $7,307.17 $7,678.06 $7,991.03 $8,316.11
$2,735.68 $3,068.26 $3,313.72 $3,580.09 $3,830.02 $4,096.00
$505.48 $530.75 $557.29 $585.16 $614.41 $645.14
$2,230.20 $2,537.50 $2,756.43 $2,994.93 $3,215.61 $3,450.86
$0.00 $8.84 $964.75 $1,048.23 $1,125.46 $1,207.80
$2,230.20 $2,528.67 $1,791.68 $1,946.71 $2,090.14 $2,243.06
$505.48 $530.75 $557.29 $585.16 $614.41 $645.14
$472.86 $496.51 $521.33 $547.40 $574.77 $1,873.55
$24.38 $26.82 $23.60 $19.12 $16.89 $17.73
$2,238.44 $2,536.10 $1,804.04 $1,965.35 $2,112.90 $996.92
$1,163.02 $1,192.45 $779.62 $784.44 $782.74
$2,512.26 $0.00 $0.00 $0.00 $0.00
0 0 0 0 1

0% 0.35% 35% 35% 35% 35%

1.80 1.60 1.40 1.20 1.00 1.00
12.60% 11.80% 11.00% 10.20% 9.40% 9.40%
8.72% 8.51% 5.43% 5.32% 5.20% 5.20%
39.49% 39.49% 39.49% 39.49% 39.49% 39.49%
11.07% 10.50% 8.80% 8.27% 7.74% 7.74%
1.92468 2.12679 2.31400 2.50541 2.69937

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 Year Revenues EBITDA Depreciation EBIT NOL at beginning of year Taxes
1 $3,789 $0 $1,519 -$1,519 $2,075 0
2 $4,926 $369 $1,671 -$1,302 $3,594 $0
3 $6,157 $924 $1,838 -$915 $4,896 $0
4 $7,389 $1,662 $2,022 -$359 $5,810 $0
5 $8,127 $2,438 $1,011 $1,427 $6,170 $0
6 $8,940 $2,736 $505 $2,230 $4,742 $0
7 $9,834 $3,068 $531 $2,538 $2,512 $9
8 $10,621 $3,314 $557 $2,756 $0 $965
9 $11,258 $3,580 $585 $2,995 $0 $1,048
10 $11,821 $3,830 $614 $3,216 $0 $1,125
Term. Year $12,412 $4,096 $645 $3,451 $0 $1,208
EBIT (1-t) Capital Expenditures
Depreciation Change in working
FCFF capital
-$1,519 $3,431 $1,519 $0 -$3,431
-$1,302 $1,716 $1,671 $34 -$1,380
-$915 $858 $1,838 $37 $29
-$359 $429 $2,022 $37 $1,197
$1,427 $450 $1,011 $22 $1,966
$2,230 $473 $505 $24 $2,238
$2,529 $497 $531 $27 $2,536
$1,792 $521 $557 $24 $1,804
$1,947 $547 $585 $19 $1,965
$2,090 $575 $614 $17 $2,113
$2,243 $1,874 $645 $18 $997

0.42
Valuing Options or Warrants when there is dilution
Enter the current stock price = $12.57
Enter the strike price on the option = 13.38
Enter the expiration of the option = 8.4
Enter the standard deviation in stock prices = 50.00% (volatility)
Enter the annualized dividend yield on stock = 0.00%
Enter the treasury bond rate = 6.50%
Enter the number of warrants (options) outstanding = 38
Enter the number of shares outstanding = 886.47

VALUING WARRANTS WHEN THERE IS DILUTION

Stock Price= 12.57 # Warrants issued= 38
Strike Price= 13.38 # Shares outstanding= 886
Adjusted S (DO NOT ENTER)= #VALUE! T.Bond rate= 6.50%
Adjusted K (DO NOT ENTER)= 13.38 Variance= 0.2500
Expiration (in years) = 8.4 Annualized dividend yield= 0.00%
Div. Adj. interest rate= 6.50%

d1 = #VALUE!
N (d1) = #VALUE!

d2 = #VALUE!
N (d2) = #VALUE!

Value of the call = #VALUE!

Number of Options = 38
Value of Options = #VALUE!