Inputs

Current riskfree rate = 2.00%

Risk Premium = 6.00%
I will assume that there are zero excess returns beyond your high growth phase.

Status Quo Optimal

Beta 0.90 1.02
Pre-tax cost of debt 4.00% 4.50% Hints on control value
Tax rate 40.00% 40.00% 1. Check on capital struc
Debt to Capital Ratio 28.00% 40.00% 2. Check on current pre-
3. Check after-tax return
Revenues $54,365.00 $54,365.00 4. If return on capital is
Operating Income (EBIT) $6,657.00 $7,322.70 5. If the firm has potenti
Always work within the r
Pre-tax return on capital 11.06% 12.50%
Reinvestment Rate = 30.00% 20.00%

Length of growth period = 5 5

Computed Values Status Quo Value Optimal value

Cost of Equity = 7.40% 8.13%
After-tax cost of debt = 2.40% 2.70%
Cost of capital = 6.00% 5.96%

After-tax return on capital 6.64% 7.50%

Reinvestment Rate = 30.00% 20.00%
Expected growth rate= 1.99% 1.50%

Value of firm
PV of FCFF in high growth $12,471.21 $15,476.88
Terminal value = $74,934.83 $81,033.43
Value of firm today = $68,466.88 $76,150.34

Value of Control
Value of status quo $68,466.88
Value of optimal $76,150.34
Value of control $7,683.46
nts on control value
Check on capital structure to see if a different mix can lower cost of capital (Use capital structure spreadsheet which is ava
Check on current pre-tax operating margin and check against industry averages; May provide clues for potential cost cutti
Check after-tax return on capital. If it is below cost of capital, set at least to cost of capital. If it is above the cost of capita
If return on capital is high, check reinvestment rate. If it is very low, check to see if there is potential for increase.
If the firm has potential for competitive advantages, see if you can lengthen the growth period (will work only if there are
ways work within the realm of the possible
 spreadsheet which is available online)
es for potential cost cutting
s above the cost of capital, check against industry averages and historical trend line.
ntial for increase.
will work only if there are positive excess returns).
Industry Name Number of firm
Annual Average Revenue growth - Last 5 years
Pre-tax Operating Margin
Advertising 31 16.76% 10.27%
Aerospace/Defense 64 9.41% 10.16%
Air Transport 36 8.77% 8.78%
Apparel 57 5.83% 10.97%
Auto Parts 51 23.94% 6.49%
Automotive 12 1.66% 6.99%
Bank 426 0.00% NA
Bank (Midwest) 45 0.00% NA
Beverage 34 -0.59% 20.45%
Biotechnology 158 26.94% -7.79%
Building Materials 45 2.82% 4.17%
Cable TV 21 1.53% 19.58%
Chemical (Basic) 16 33.40% 12.09%
Chemical (Diversified) 31 9.21% 13.20%
Chemical (Specialty) 70 25.69% 11.10%
Coal 20 16.91% 15.94%
Computer Software 184 14.88% 31.35%
Computers/Peripherals 87 10.93% 14.15%
Diversified Co. 107 17.24% 14.09%
Drug 279 34.97% 21.91%
E-Commerce 57 21.87% 14.39%
Educational Services 34 17.27% 20.80%
Electric Util. (Central) 21 4.81% 17.72%
Electric Utility (East) 21 -3.29% 19.13%
Electric Utility (West) 14 1.24% 16.79%
Electrical Equipment 68 25.14% 13.19%
Electronics 139 12.50% 5.99%
Engineering & Const 25 4.58% 4.72%
Entertainment 77 10.49% 17.72%
Entertainment Tech 40 14.78% 10.48%
Environmental 82 9.90% 15.22%
Financial Svcs. (Div.) 225 14.51% 43.49%
Food Processing 112 9.48% 9.08%
Foreign Electronics 9 17.51% 5.27%
Funeral Services 6 1.09% 15.64%
Furn/Home Furnishings 35 1.89% 6.43%
Healthcare Information 25 11.71% 12.11%
Heavy Truck & Equip 21 7.38% 9.13%
Homebuilding 23 -9.29% -1.56%
Hotel/Gaming 51 7.52% 12.61%
Household Products 26 16.13% 17.38%
Human Resources 23 0.01% 1.91%
Industrial Services 137 8.39% -21.40%
Information Services 27 16.56% 19.33%
Insurance (Life) 30 0.00% NA
Insurance (Prop/Cas.) 49 17.00% NA
Internet 186 12.44% 18.25%
IT Services 60 7.21% 14.43%
Machinery 100 13.57% 11.05%
Maritime 52 5.93% 14.81%
Med Supp Invasive 83 6.53% 22.22%
Med Supp Non-Invasiv 146 7.18% 6.48%
Medical Services 122 4.92% 11.11%
Metal Fabricating 24 10.76% 15.07%
Metals & Mining (Div.) 73 31.59% 31.57%
Natural Gas (Div.) 29 8.90% 28.94%
Natural Gas Utility 22 -0.95% 12.80%
Newspaper 13 -5.01% 14.59%
Office Equip/Supplies 24 10.81% 6.65%
Oil/Gas Distribution 13 12.65% 18.45%
Oilfield Svcs/Equip. 93 17.02% 15.11%
Packaging & Container 26 9.09% 10.12%
Paper/Forest Products 32 10.88% 12.01%
Petroleum (Integrated) 20 20.81% 9.76%
Petroleum (Producing) 176 32.22% 25.74%
Pharmacy Services 19 11.95% 5.11%
Pipeline MLPs 27 22.83% 8.95%
Power 93 43.06% 14.54%
Precious Metals 84 32.31% 33.30%
Precision Instrument 77 23.36% 10.74%
Property Management 31 19.80% 15.63%
Public/Private Equity 11 39.94% -2.58%
Publishing 24 -6.93% 12.10%
R.E.I.T. 5 0.01% 129.07%
Railroad 12 12.29% 28.43%
Recreation 56 6.56% 11.51%
Reinsurance 13 0.00% NA
Restaurant 63 2.45% 15.82%
Retail (Hardlines) 75 3.83% 7.50%
Retail (Softlines) 47 6.18% 9.39%
Retail Automotive 20 11.09% 6.88%
Retail Building Supply 8 15.38% 8.13%
Retail Store 37 8.85% 5.84%
Retail/Wholesale Food 30 8.23% 3.18%
Securities Brokerage 28 4.59% 48.78%
Semiconductor 141 41.30% 22.76%
Semiconductor Equip 12 55.88% 21.65%
Shoe 19 3.50% 11.34%
Steel 32 30.89% 5.83%
Telecom. Equipment 99 4.18% 10.87%
Telecom. Services 74 14.96% 22.74%
Telecom. Utility 25 -6.90% 15.83%
Thrift 148 0.00% NA
Tobacco 11 6.61% 20.61%
Toiletries/Cosmetics 15 2.56% 10.85%
Trucking 36 9.52% 6.37%
Utility (Foreign) 4 4.92% 11.60%
Water Utility 11 5.43% 26.61%
Wireless Networking 57 10.71% -11.47%
Total Market 5891 14.80% 17.24%
After-tax ROCAverage effective tax rateUnlevered BetaEquity (Levered) BetaCost of equity
10.54% 10.73% 1.75 2.02 14.09%
18.53% 20.72% 1.03 1.10 8.49%
16.45% 20.54% 1.10 1.21 9.21%
14.02% 16.08% 1.22 1.30 9.71%
15.82% 18.99% 1.59 1.70 12.13%
6.96% 24.07% 0.96 1.59 11.47%
NA 15.97% 0.38 0.77 6.52%
NA 17.77% 0.73 0.93 7.50%
12.95% 19.14% 0.77 0.88 7.20%
-13.33% 2.49% 1.16 1.03 8.09%
2.58% 11.17% 0.89 1.50 10.96%
8.80% 27.35% 0.98 1.37 10.15%
13.66% 20.90% 1.24 1.36 10.08%
13.81% 21.73% 1.39 1.51 11.02%
12.25% 17.58% 1.15 1.28 9.57%
15.26% 12.75% 1.32 1.53 11.08%
45.06% 12.27% 1.18 1.04 8.17%
32.09% 11.77% 1.33 1.30 9.71%
8.01% 15.55% 0.71 1.14 8.76%
15.02% 5.36% 1.08 1.12 8.63%
13.08% 12.33% 1.08 1.03 8.08%
34.34% 25.17% 0.92 0.83 6.91%
6.38% 31.82% 0.48 0.75 6.41%
6.89% 33.14% 0.49 0.70 6.08%
6.11% 31.30% 0.49 0.75 6.40%
15.03% 17.02% 1.35 1.33 9.89%
15.72% 10.36% 1.08 1.07 8.31%
13.58% 26.26% 1.39 1.22 9.26%
9.45% 15.38% 1.31 1.63 11.72%
11.69% 11.59% 1.48 1.23 9.32%
7.56% 11.71% 0.60 0.81 6.73%
5.95% 19.18% 0.50 1.31 9.76%
11.88% 20.00% 0.77 0.91 7.39%
7.83% 35.12% 1.24 1.09 8.47%
7.81% 30.84% 0.85 1.14 8.73%
9.50% 20.43% 1.65 1.81 12.81%
9.45% 22.19% 1.20 1.17 8.95%
10.88% 20.62% 1.48 1.80 12.76%
-2.09% 5.12% 1.02 1.45 10.62%
6.95% 14.53% 1.28 1.74 12.37%
14.52% 25.12% 0.95 1.07 8.32%
7.67% 25.35% 1.40 1.24 9.34%
-53.50% 19.03% 0.81 0.93 7.51%
10.83% 18.93% 0.89 1.07 8.35%
NA 28.04% 1.54 1.58 11.43%
NA 19.36% 1.01 0.91 7.37%
32.75% 6.87% 1.24 1.09 8.45%
26.95% 19.15% 1.14 1.06 8.25%
12.60% 22.15% 1.14 1.20 9.12%
 4.76% 5.55% 0.58 1.40 10.30%
15.88% 11.86% 0.80 0.85 6.99%
19.24% 12.73% 1.07 1.03 8.09%
18.55% 19.93% 0.78 0.91 7.39%
14.78% 26.55% 1.63 1.59 11.48%
19.48% 11.04% 1.28 1.33 9.89%
7.10% 21.98% 1.06 1.33 9.87%
8.09% 30.16% 0.46 0.66 5.85%
11.05% 25.13% 1.42 1.76 12.53%
10.36% 21.05% 1.04 1.38 10.18%
6.83% 13.70% 0.65 0.96 7.68%
8.54% 17.39% 1.39 1.55 11.24%
10.40% 24.23% 0.88 1.16 8.86%
11.01% 10.61% 0.96 1.36 10.08%
10.08% 27.41% 1.12 1.18 9.01%
13.50% 11.14% 1.13 1.34 9.97%
11.18% 24.67% 1.00 1.12 8.63%
8.60% 6.37% 0.72 0.98 7.81%
7.56% 8.66% 0.65 1.35 10.03%
9.57% 7.51% 1.14 1.15 8.79%
12.10% 13.94% 1.33 1.28 9.57%
5.18% 18.59% 0.59 1.13 8.72%
-0.14% 3.79% 1.62 2.18 15.01%
11.38% 18.55% 0.89 1.25 9.40%
14.07% 1.04% 1.15 1.47 10.73%
11.10% 23.74% 1.24 1.44 10.56%
8.26% 17.37% 1.11 1.45 10.62%
NA 7.22% 1.05 0.93 7.47%
20.32% 21.57% 1.19 1.27 9.52%
14.99% 23.04% 1.65 1.77 12.57%
28.74% 24.64% 1.57 1.44 10.55%
9.89% 34.43% 1.12 1.37 10.13%
12.18% 31.39% 0.97 1.04 8.18%
13.60% 25.02% 1.14 1.29 9.64%
10.38% 31.21% 0.64 0.75 6.39%
10.39% 26.22% 0.43 1.20 9.11%
28.41% 11.01% 1.69 1.50 10.94%
40.44% 15.17% 2.42 1.79 12.70%
27.41% 24.31% 1.38 1.25 9.43%
5.94% 21.03% 1.40 1.68 12.03%
23.30% 13.16% 1.28 1.02 8.00%
13.70% 14.22% 0.82 0.98 7.78%
8.34% 29.42% 0.54 0.88 7.16%
NA 12.43% 0.75 0.71 6.17%
27.98% 31.03% 0.78 0.85 7.03%
19.54% 20.30% 1.20 1.30 9.73%
9.07% 25.48% 1.08 1.24 9.38%
4.56% 26.07% 0.48 0.96 7.68%
5.42% 35.22% 0.43 0.66 5.85%
-18.21% 12.12% 1.12 1.27 9.54%
12.21% 15.48% 0.92 1.15 8.81%
Std deviation in stock pricesPre-tax cost of debtMarket Debt/CapitalCost of capitalSales/Capital EV/Sales
101.29% 5.87% 30.20% 10.90% 1.42 1.14
61.32% 3.37% 20.42% 7.17% 2.53 0.93
64.80% 3.37% 19.56% 7.80% 2.40 1.78
88.82% 4.37% 15.53% 8.61% 1.85 1.19
80.58% 4.37% 21.66% 10.07% 3.18 0.59
68.91% 3.87% 57.37% 6.22% 1.41 0.73
61.15% 3.37% 60.95% 3.78% NA NA
55.60% 3.37% 37.31% 5.46% NA NA
66.05% 3.87% 20.96% 6.18% 0.83 3.03
113.11% 5.87% 11.88% 7.55% 0.97 4.49
78.83% 3.87% 48.54% 6.77% 0.82 1.22
50.77% 3.37% 40.50% 6.86% 0.71 2.21
49.27% 2.87% 21.47% 8.29% 1.43 1.52
56.31% 3.37% 18.28% 9.37% 1.48 1.62
71.60% 3.87% 17.46% 8.31% 1.56 1.56
55.52% 3.37% 22.42% 9.05% 1.22 1.78
82.03% 4.37% 6.97% 7.79% 1.83 3.07
97.69% 4.87% 9.28% 9.08% 2.96 1.39
75.00% 3.87% 50.55% 5.50% 0.68 2.11
103.44% 5.87% 13.39% 7.95% 0.89 2.85
88.13% 4.37% 6.02% 7.75% 1.20 4.55
78.24% 3.87% 10.97% 6.41% 2.66 1.14
23.37% 2.37% 46.28% 4.10% 0.55 2.26
18.30% 2.37% 39.82% 4.23% 0.54 2.51
19.85% 2.37% 45.81% 4.12% 0.54 2.19
67.76% 3.87% 11.24% 9.04% 1.51 1.54
89.93% 4.37% 18.25% 7.28% 3.51 0.47
65.03% 3.87% 10.71% 8.51% 4.05 0.46
108.37% 5.87% 29.07% 9.34% 0.78 1.89
76.91% 3.87% 8.89% 8.70% 1.29 1.87
92.14% 4.87% 30.41% 5.57% 0.80 2.07
82.27% 4.37% 71.55% 4.65% 0.18 6.67
60.68% 3.37% 22.80% 6.16% 1.82 1.08
35.40% 2.87% 29.62% 6.47% 2.43 0.37
39.35% 2.87% 36.14% 6.20% 0.79 1.86
80.90% 4.37% 19.61% 10.81% 2.08 0.92
65.79% 3.87% 5.97% 8.55% 1.24 3.82
69.92% 3.87% 30.39% 9.59% 1.64 1.34
70.00% 3.87% 50.07% 6.47% 1.00 1.23
79.09% 3.87% 34.24% 8.93% 0.69 2.58
62.24% 3.37% 15.96% 7.32% 1.13 2.21
78.27% 3.87% 9.35% 8.68% 6.48 0.29
74.43% 3.87% 24.65% 6.23% 2.26 0.85
48.10% 2.87% 23.20% 6.81% 0.72 2.94
53.35% 3.37% 39.08% 7.76% NA NA
37.88% 2.87% 19.10% 6.29% NA NA
117.09% 5.87% 2.63% 8.32% 2.25 3.91
69.45% 3.87% 5.74% 7.91% 2.61 1.75
57.21% 3.37% 16.05% 7.98% 1.53 1.37
 69.19% 3.87% 63.01% 5.27% 0.35 2.69
79.18% 3.87% 13.85% 6.35% 0.92 2.52
84.89% 4.37% 11.52% 7.46% 4.00 0.73
76.26% 3.87% 33.09% 5.71% 2.51 0.68
68.98% 3.87% 13.41% 10.25% 1.36 1.67
104.38% 5.87% 12.36% 9.10% 0.89 2.47
48.77% 2.87% 27.04% 7.67% 0.41 3.37
24.90% 2.37% 40.26% 4.07% 0.94 1.45
90.74% 4.87% 31.67% 9.49% 1.23 1.31
64.26% 3.37% 38.66% 7.02% 2.26 0.55
56.61% 3.37% 36.83% 5.60% 0.47 3.56
62.37% 3.37% 18.64% 9.52% 0.76 2.38
41.59% 2.87% 34.13% 6.42% 1.48 1.06
93.84% 4.87% 37.45% 7.40% 1.12 1.06
38.99% 2.87% 16.10% 7.83% 1.78 0.87
88.11% 4.37% 19.92% 8.51% 0.71 2.20
59.43% 3.37% 17.00% 7.51% 3.56 0.53
34.90% 2.87% 29.06% 6.04% 0.99 1.97
97.19% 4.87% 59.81% 5.78% 0.69 1.48
90.87% 4.87% 7.57% 8.35% 0.40 5.33
65.33% 3.87% 13.75% 8.58% 1.38 1.64
82.21% 4.37% 58.44% 5.16% 0.40 2.85
77.54% 3.87% 37.45% 10.26% 0.30 3.43
64.98% 3.37% 38.76% 6.54% 1.37 1.15
49.61% 2.87% 25.77% 8.41% 0.11 14.13
42.95% 2.87% 20.09% 8.79% 0.60 3.44
70.55% 3.87% 32.75% 7.90% 0.89 1.60
30.40% 2.87% 19.06% 6.37% NA NA
68.37% 3.87% 11.32% 8.71% 1.82 2.50
92.79% 4.87% 19.57% 10.68% 3.00 0.83
60.91% 3.37% 5.32% 10.10% 4.94 0.87
52.02% 3.37% 27.59% 7.90% 2.22 0.92
37.61% 2.87% 12.33% 7.38% 2.37 1.04
67.71% 3.87% 20.37% 8.15% 3.55 0.59
40.02% 2.87% 29.25% 5.02% 5.02 0.35
44.31% 2.87% 81.15% 3.11% 0.29 3.08
70.52% 3.87% 7.70% 10.27% 1.57 2.06
68.70% 3.87% 13.20% 11.33% 2.21 0.97
55.52% 3.37% 2.13% 9.27% 3.33 1.52
56.94% 3.37% 31.69% 8.86% 1.21 0.78
87.77% 4.37% 11.48% 7.38% 2.73 1.25
68.58% 3.87% 25.42% 6.39% 0.83 1.85
60.40% 3.37% 49.02% 4.64% 0.74 1.75
53.93% 3.37% 22.68% 5.23% NA NA
41.53% 2.87% 15.76% 6.19% 1.84 2.36
60.34% 3.37% 17.11% 8.41% 2.70 1.48
59.88% 3.37% 21.73% 7.78% 2.16 1.28
32.68% 2.87% 60.79% 4.06% 0.58 1.39
18.89% 2.37% 44.88% 3.86% 0.30 4.39
75.03% 3.87% 21.30% 8.00% 1.14 1.91
75.08% 3.87% 31.81% 6.75% 0.97 1.67
EV/EBITDA EV/EBIT Price/Book Trailing PE
7.90 11.09 1.83 27.39
7.41 9.14 2.75 34.40
12.91 20.22 8.24 156.14
8.65 10.83 2.46 20.56
6.19 9.05 2.08 15.83
5.81 10.40 1.05 10.84
4.37 4.37 0.85 16.69
4.57 4.57 1.29 34.13
12.04 14.80 3.61 22.51
NA NA 3.19 18.87
10.99 29.23 0.99 265.15
6.25 11.27 2.31 12.66
8.90 12.60 2.64 12.17
8.95 12.28 2.96 12.94
9.84 14.06 3.08 15.63
7.34 11.14 2.77 12.09
8.64 9.81 3.74 68.56
8.11 9.85 3.94 38.66
11.37 14.99 2.12 17.94
9.35 13.02 2.73 25.45
22.08 31.60 4.55 192.91
4.62 5.47 2.69 13.83
7.88 12.76 1.57 16.46
8.56 13.14 1.78 20.61
7.56 13.03 1.36 15.54
9.12 11.68 2.33 24.10
5.82 7.84 1.65 14.19
7.36 9.76 1.73 15.95
8.03 10.67 1.71 15.42
11.63 17.81 1.97 23.93
8.77 13.58 2.22 30.21
14.36 15.33 1.79 21.14
9.54 11.93 2.58 20.14
3.48 7.03 0.90 16.66
9.13 11.86 1.93 13.98
9.68 14.31 2.19 21.08
20.77 31.55 4.55 59.71
10.54 14.65 3.42 22.63
NA NA 1.38 33.27
12.46 20.51 2.64 45.84
10.72 12.69 3.33 17.57
9.98 14.92 1.71 57.02
NA NA 2.40 22.05
10.55 15.23 2.97 25.56
1.32 1.32 0.70 18.61
95.56 96.01 1.00 35.02
17.06 21.41 4.59 36.16
9.75 12.15 3.73 21.18
9.08 12.41 2.33 21.51
 9.63 18.14 0.85 31.34
9.06 11.36 2.58 43.84
9.23 11.34 2.82 37.04
5.16 6.15 2.09 16.47
8.91 11.06 2.30 18.01
6.35 7.83 2.35 31.32
6.27 11.63 1.55 54.76
8.06 11.36 1.81 15.86
6.50 8.99 2.04 40.89
5.71 8.25 1.38 16.85
12.59 19.28 2.73 43.30
9.87 15.78 2.06 27.58
7.18 10.51 2.09 13.14
5.46 8.83 1.30 26.24
5.89 8.87 1.64 58.87
5.58 8.53 1.76 38.34
8.20 10.28 2.19 12.97
15.03 21.96 3.12 27.55
6.63 10.17 1.06 17.92
11.52 16.00 2.15 90.39
10.25 15.30 2.20 32.86
13.00 18.21 1.36 48.20
NA NA 1.02 8.92
6.44 9.47 2.20 104.19
9.54 10.95 1.89 16.98
9.19 12.09 2.67 37.96
9.11 13.92 1.71 40.21
22.47 22.47 0.71 47.47
12.17 15.82 6.66 20.03
7.73 11.06 3.04 36.52
6.84 9.30 3.46 45.45
10.76 13.40 3.21 16.22
9.74 12.85 3.02 22.78
7.45 10.10 2.62 18.78
6.73 10.91 2.23 36.66
5.97 6.32 0.72 24.77
6.19 9.03 2.62 20.90
3.78 4.50 1.68 10.83
11.64 13.41 3.74 14.10
7.08 13.30 0.92 16.46
8.46 11.50 2.32 18.32
4.80 8.14 1.75 16.97
5.33 11.05 1.79 132.35
3.67 3.67 0.94 36.40
10.36 11.44 8.63 14.88
11.05 13.67 6.49 35.50
10.13 20.05 4.49 30.78
5.47 11.95 0.64 1687.02
11.13 16.48 1.77 22.35
NA NA 2.72 38.68
7.37 9.70 2.00 33.67