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(a) In years 2007 and after, Flash's effective combined federal and state income tax rate was 40%.
Exhibit 2 Balance Sheets, 2007 - 2009 ($000s except number of shares outstanding)
December 31,
2007 2008 2009
Line Item
Cash
Accounts receivable
Inventories
Prepaid expenses
Property, plant & equipment at cost
Accumulated depreciation
Accounts payable
Purchases
Accrued expenses
Income taxes payable
Other current liabilities
Relationships for 2010 Through 2012
Assumption or Ratio
81.10% of sales
5.0% of sales
8.36% of sales
Beginning of year debt balance interest rate
$50,000 of expense each year
3.3% of sales
60 days sales outstanding
52 days of cost of good sold
0.4% of sales
Beginning PP&E at cost + capital expenditures
Beginning A/D + 7.5% of beginning PP&E at cost
30 days of purchases
60% of cost of goods sold
0.73% of sales
10% of income taxes expense
0.62% of sales
Exhibit 4 Selected Financial Information for Flash Memory, Inc., and Selected Competitors, 2007 through 2009
(a) Security analyst estimates for year-end EPS $ and Return on Equity; actual data on April 30, 2010, for all other items.
Flash Memory, Inc.
Historical / Forecast Income Statements (000s)
2007 2008
Sales 77,131 80,953
4.96%
Cost of goods sold 62,519 68,382
81.06% 84.47%
Gross margin 14,612 12,571
Capital expenditures
Depreciation expense rate
Shares issued under equity alternative
Net proceeds from stock issue / sh.
Gross proceeds from stock issue / sh.
Prime rate:
Base spread:
15 15 15
7,980 7,980 7,980
15,122 19,210 23,330
23,117 27,205 31,325
Book Value
per share Stock Price
Micron Technology $ 6.61 $ 9.35
SanDisk Corp. $ 18.13 $ 39.84
STEC, Inc. $ 5.48 $ 13.90
WACC 10.12%
Shares Book Value of Market Value Book Value of
Outstanding Equity (calc) of Equity (calc) Debt to Cap % Debt (calc) Levered Beta
847.6 5602.6 7925.1 33.0% 2759.5 1.25
229.3 4157.2 9135.3 19.0% 975.1 1.36
50.3 275.6 699.2 0.0% 0.0 1.00
Assumed Debt Asset Beta
Beta E / V (calc) (calc)
0.00 0.742 0.927
0.00 0.904 1.229
0.00 1.000 1.000
1.052
Average Asset Beta
Flash Memory, Inc.
Evaluation of Investment Proposal
2010 2011
Sales $21,600
Current debt
600 bp
2009 2010E 2011E 2012E
89,250 120,000 165,600 172,000
10.25%
72,424 97,320 133,848 138,904
81.15% 81.10% 80.83% 80.76%
16,826 22,680 31,752 33,096
2007 2008
Cash 2,536 2,218
3.29% 2.74%
Accounts receivable 10,988 12,864
52.0 days 58.0 days
Inventories 9,592 11,072
56.0 days 59.1 days
Prepaid expenses 309 324
0.40% 0.40%
Total current assets 23,425 26,478
Capital expenditures
Depreciation expense rate
Shares issued under equity alternative
Net proceeds from stock issue / sh.
Prime rate:
Spread (bp):
15 15 15 15
7,980 7,980 7,980 7,980
11,691 15,074 20,622 26,624
19,686 23,068 28,617 34,619