The DCF analysis is based upon computing the free cash flows (FCF) for the upcoming

years, therefore we need to estimate those first. Using the two revenue growth rates in the first 5
and the second 5 years and the EBIAT margin of 16%, we arrived at EBIAT values for the full
projection period of 10 years. To estimate the EBIT, we used the common method of projecting
the D&A by taking its percentage of sales from the year prior the acquisition, namely 5.3%, thus
arriving at the EBIT values; also used the same method for estimating the capital expenditures
for the projected period (6.78% of sales). For corporate tax, we used 40%, as such a percentage
is common for the US.
For the net working capital (NWC) calculation, we needed the current assets and current
liabilities, so similar to using the provided asset intensity of 29%, provided in the instructions;
we used percentage of sales of current liabilities form 1993, as a constant percentage throughout
the projected period. Thus, we arrived at values both for current assets and liabilities, and
consequently at the changes in the NWC. Finally we computed the values for the FCFs (See
Appendix 1, sheet DCF).
Finally, in the DCF analysis we performed a sensitivity analysis for the Enterprise Value
(EV) of the company (See Appendix 1, sheet Sensitivity Analysis). To do so, we computed the
range of Present Values (PV) of the FCFs, using the given discount rate range (12% - 18%) and
the range Terminal values, using the given growth rate range in perpetuity (2% - 6%). We arrived
at a range between $6.4 and $14.5 million, with a mean of $9 million.
With the intention of comparing this range of EVs to a different method of valuing the
company, we made a Precedent Transaction Analysis, using the multiples EV/EBITDA and
EV/Sales of the companies Bekins and Bell + Howell (See Appendix 1, sheet PTA). Using
Record Masters EBITDA and Sales from 1993 (year prior acquisition), we arrived,
correspondingly, at a range of values for EV/EBITDA: $11.4 to $16.1 million with a mean of
$13.7 million and for EV/Sales: $11.8 to $16 million with a mean of $13.9 million. As expected
the valuation from the PTA analysis turned out to be higher than the one from the DCF, due to
the fact that the acquisition prices take into account the anticipated synergies form the deal.

FCF=EBIT - tax + D&A - CAPEX-Changes in NWC