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Assumptions:- Firms in same industry have similar customer operations & assets and result in similar business risks
problems of reliabiliy and standard
are companies truly comparable?
marginal tax rate 40%
debt beta = 0
Market Risk Premium -5%
rf = 4.25%
cost of debt = 5.50% Estimate average asset beta
Asset
beta
0.45
0.63
0.94
0.74
0.78
0.71
arvard Business Publishing
Revenue Projections ( All figures in $Mn)
2005 2006 2007 2008 2009 2010 2011 2012
Service Revenue 2827.0 3214.4 3679.2 4194.3 4781.5 5379.2 5917.2 6331.4
Equipment Sales 203.7 258.7 267.0 314.8 358.8 403.7 444.1 475.2
Total Revenues 3030.7 3473.1 3946.2 4509.1 5140.3 5782.9 6361.3 6806.6
Operating Expenses:
System Operating Expenses 604.09 639.68 717.08 838.87 956.31 1075.85 1183.43 1266.27
Cost of Equipment Sold 511.94 568.90 640.23 755.46 861.22 968.87 1065.76 1140.36
Selling, General & Administrative 1217.71 1399.56 1555.64 1803.64 2056.15 2313.17 2544.49 2722.60
EBITDA 696.96 864.95 1033.26 1111.14 1266.62 1425.00 1567.62 1677.37
Depreciation & Amortization 490.09 555.53 582.27 705.23 803.96 867.44 922.38 952.91
EBIT 206.87 309.43 450.99 405.91 462.66 557.56 645.25 724.46
Taxes @ 40% 95.9 120.6 216.7 162.36 185.07 223.03 258.10 289.78
EBIT (1-t) = NOPAT 155 179.5 314.7 243.54 277.60 334.54 387.15 434.68
Assets
Cash & Cash Equivalents 29.0 32.9 204.5 86.57 12.70 -95.83 -204.74 -2458.97 0.96% 0.95%
Working Capital 2005 2006 2007 2008 2009 2010 2011 2012
Plus:Accounts Receivable 362.4 407.4 435.5 521.93 594.99 669.37 736.32 787.86
Plus:Inventory 92.7 117.2 101.0 135.00 153.87 173.13 190.45 203.79 45.53% 45.30%
Plus:Prepaid Expenses 32.1 35.0 41.6 46.89 53.46 60.14 66.15 70.78
Less:Accounts Payable 254.1 254.9 260.8 335.45 382.42 430.22 473.24 506.37
Less:Deferred Revenue & Deposit 111.4 123.3 143.4 163.23 186.08 209.34 230.28 246.40
Less:Accrued Liabilities 42.9 47.8 59.2 64.66 73.71 82.92 91.21 97.60
Net Working Capital 78.8 133.5 114.6 140.48 160.11 180.15 198.19 212.07
Changes in Working Capital 54.74 -18.91 25.87 19.63 20.04 18.04 13.88
Assets
Property, Plan & Equipment 2,553.0 2,628.8 2,595.1 2,521.14 2,436.83 2,436.83 2,484.54 2,586.64
Licenses 1,362.3 1,494.3 1,482.4 1,482.45 1,482.45 1,482.45 1,482.45 1,482.45
Customer Lists 47.6 26.2 15.4 15.38 15.38 15.38 15.38 15.38
Marketable Equity Securities 225.4 4.9 0.0
Investments in Affiliated Entities 172.1 150.3 157.7
Long Term Note Receivable 4.7 4.5 4.4
Goodwill 481.2 485.5 491.3
Other Long Term Assets 30.0 31.1 31.8
D/V = 0.0%
D/V = 28.1%
PV of FCF @ 7.80% 270.53 294.54 251.05 238.00 218.92 1273.03 D/V = 0.0%
8.15% 269.65 292.63 248.61 234.92 215.39 1261.20 D/V = 28.1%