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Revenues Weight Risk PremiumNorth Americ 17.5 24.82% 4.00%South Americ 4.3 6.10% 12.00%

Switzerland 1.1 1.56% 4.00%Germany/Fra 18.4 26.10% 4.00%Italy/Spain 6.4 9.08% 5.50%

Asia 5.8 8.23% 9.00%Rest of W. Eu 13 18.44% 4.00%Eastern Euro 4 5.67% 8.00%Total 70.5 100.00% 5.26%

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Two-Stage FCFE Discount Model

This model is designed to value the equity in a firm, with two stages o

period of higher growth and a subsequent period of stable

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 stockhold

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 p

4. Expected growth rate in earnings during the stable growth period. 0.375

5. Inputs for the cost of equity.

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Inputs to the model

Current Earnings per share = $105.50 (in currency)

Current Dividends per share $38.00 (in currency)

Current Capital Spending/sh $114.21 (in currency)

Current Depreciation / share $73.84 (in currency)

Current Revenues/ share = $1,820.48

Working Capital/ share = $169.24 (in currency)

Chg. Working Capital/share $7.07

Enter length of extraordinary growth period 5 (in years)

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

Beta of the stock = 0.85

Riskfree rate= 4.00% (in percent)

Risk Premium= 5.26% (in percent)

Earnings Inputs

Do you want to use the historical growth ra Yes (Yes or No)If yes, enter EPS from five years ago = $67.08 (in currency)

Do you have an outside estimate of growth Yes (Yes or No)

If yes, enter the estimated growth: 9.35% (in percent)

Do you want to calculate the growth rate from fundament Yes (Yes or No)

If yes, enter the following inputs:

Net Income Currently = $4,291.00 (in currency)Interest Expense Currently = $1,666.00 (in currency)

Book Value of Debt = $12,906.00 (in currency)

Book Value of Equity = $21,423.00 (in currency)

Tax Rate on Income= 31.00% (in percent)

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

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ROA = 15.85% D/E = 60.24% (in percent)

Retention = 63.98% Interest Rate= 12.91% (in percent)

Do you want to change any of these inputs for the high gr Yes (Yes or No)

If yes, specify the values for these inputs (Please enter all variables)

ROA = 15.85% D/E = 60.24% (in percent)

Retention = 63.98% Interest Rate= 4.25% (in percent) 23.63%

Specify weights to be assigned to each of these growth rates:

Historical Growth Rate = 0.00% (in percent)

Outside Prediction of Growth = 0.00% (in percent)

Fundamental Estimate of Growth = 100.00% (in percent)

Enter growth rate in stable growth period? 4.00% (in percent)

Beta

Will the beta to change in the stable period? No (Yes or No)

If yes, enter the beta for stable period = 1

Capital Spending, Depreciation & Working Capital

Do you want all these items to grow at the same rate as ea Yes (Yes or No)If not, enter the growth rates for each of the following items:

Capital Spendin Depreciation Revenues

High Growth 20% 20% 18% (in percent)

Stable Growth Do not enter Do not enter 6% (in percent)

Do you want to keep the current fraction of working capit Yes (Yes or No)

Specify working capital as a percent of reve 40% (in percent)

Do you want to use the current debt ratio as your desired Yes (Yes or No)

If no, enter the following inputs for financing mix,

Desired debt financing proportion - Capital Spending (in percent)

Desired debt financing proportion - Working Capital (in percent)

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Capital spending and Depreciation during Stable Growth

Is capital spending to be offset by depreciation in stable p No (Yes or No)

If no, enter capital expenditures as % of depreciation in st 150% (in percent)

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

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Warnings

Capital Spending exceeds depreciation by a significant factor

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Output from the program

Cost of Equity = 8.47%

Proportion of Debt: Capital Spending (DR) 37.60%

Proportion of Debt: Working Capital (DR) 37.60%

Current Earnings per share= $105.50

(Capital Spending - Depreciation)*(1-DR) $25.19

Change in Working Capital * (1-DR) $4.41

Current FCFE $75.90

Growth Rate in Earnings per share

Growth Rate Weight

Historical Growth = 9.48% 0.00%

Outside Estimates = 9.35% 0.00%

Fundamental Growth = 15.12% 100.00% 0.232258065

Weighted Average 15.12%

Growth Rate in capital spending, depreciation and working capital

High Growth table GrowthGrowth rate in capital spendi 15.12% 4.00%

Growth rate in depreciation 15.12% 4.00%

Growth rate in revenues = 15.12% 4.00%

Working Capital as percent of revenues = 9.30% (in percent)

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

1 2 3 4

Earnings $121.45 $139.81 $160.95 $185.28- (CapEx-Depreciation)*(1- $29.00 $33.39 $38.43 $44.24

-Chg. Working Capital*(1- $15.97 $18.38 $21.16 $24.36

Free Cashflow to Equity $76.48 $88.04 $101.35 $116.68

Present Value $70.51 $74.83 $79.41 $84.28

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Growth Rate in Stable Phase = 4.00%

FCFE in Stable Phase = $164.84

Cost of Equity in Stable Phase = 8.47%

Price at the end of growth phase = $3,686.87

Present Value of FCFE in high growth phase = $398.48

Present Value of Terminal Price = $2,455.21

Value of the stock = $2,853.70

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Estimating the value of growth

Value of assets in place = $895.94

Value of stable growth = $869.46

Value of extraordinary growth = $1,088.29

Value of the stock = $2,853.70

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f growth, an initial

rowth.

ers.

riod.

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0.112068966

0.8510512

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5 Terminal Yea

$213.29 $221.82$50.93 $48.44

$28.04 $8.54

$134.32 $164.84

$89.45

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