Year

1
2
3
4
5
6
7
8
9
10

FCFF
Terminal Valu Present Value
($269.28)
($234.36)
($328.88)
($249.11)
($227.44)
($149.93)
($98.99)
($56.80)
($58.02)
($28.97)
$134.16
$58.89
$255.07
$99.39
$286.28
$99.94
$533.77
$168.43
$792.27 $27,620.01
$8,173.33
$7,880.81
$149.37

Valuing Options or Warrants when there is dilution

Enter
Enter
Enter
Enter
Enter
Enter
Enter
Enter

the
the
the
the
the
the
the
the

current stock price =

strike price on the option =
expiration of the option =
standard deviation in stock price
annualized dividend yield on sto
treasury bond rate =
number of warrants (options) ou
number of shares outstanding =

300
18.71
8
50.00% (volatility)
0.00%
5.00%
6.01
52.76

VALUING WARRANTS WHEN THERE IS DILUTION

Stock Price=
300 # Warrants issued=
Strike Price=
18.71 # Shares outstanding=
Adjusted S (DO NOT ENTER 298.606304 T.Bond rate=
Adjusted K (DO NOT ENTER
18.71 Variance=
Expiration (in years) =
8 Annualized dividend yield=
Div. Adj. interest rate=
d1 =
N (d1) =

2.94868326
0.99840435

d2 =
N (d2) =

1.53446969
0.93754293

Value of the call =$286.37

Number of Option
6.01
Value of Options
###

6.01
53
5.00%
0.2500
0.00%
5.00%

General FCFF Discount Model

A Valuation of Amazon

This model is designed to value a firm, with two stages of growth, an

period of higher growth and a subsequent period of stable growth
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 stockholder
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 perio
4. Expected growth rate in earnings during the stable growth period.
5. Inputs for the cost of capital. (Cost of equity, Cost of debt, Weights on debt and equity)

Page

General FCFF Discount Model

Inputs to the model

Current EBIT =

($80.00)

(in currency)

Current Net Income =

($80.00)

(in currency)

Current Dividends =

$0.00

( in currency)

Current Interest Expense =

$0.00

(in currency)

Current Capital Spending

$30.00

(in currency)

Current Depreciation =

$15.00

(in currency)

Tax Rate on Income =

36.00%

(in percent)

$667.00

( in currency)

Current Working Capital =

$2.00

(in currency)

Chg. Working Capital =

$0.00

(in currency)

Book Value of Debt =

$0.00

( in currency)

$10.00

(in currency)

Current Revenues =

Book Value of Equity =

Weights on Debt and Equity

Is the firm publicly traded ?

Yes

( Yes or No)

$325.00

(in currency)

& Number of shares outstanding =

52.76

(in #)

& Market Value of Debt =

$0.00

( in currency)

If yes, enter the market price per share =

If no, do you want to use the book value debt ratio ?

(Yes or No)

If no, enter the debt to capital ratio to be used =

(in percent)

Enter length of extraordinary growth pe

10

(in years)

No

(Yes or No)

Costs of Components
Do you want to enter cost of equity direc
If yes, enter the cost of equity =

(in percent)

If no, enter the inputs to the cost of equity

Beta of the stock =

1.8

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General FCFF Discount Model

Riskfree rate=

5.00%

(in percent)

Risk Premium=

5.50%

(in percent)

Enter the cost of debt for cost of capital

8.00%

( in percent)

Earnings Inputs
Please enter year-specific inputs for each of the following variables:
Year

Growth Rate inCOGS as % ofGrowth Rate in

Growth Rate Working
in
Capital
Revenue

Revenue Capital Spending

Depreciation
as % of Revenue

150.00%

110%

75%

100%

5.00%

100.00%

105%

50%

75%

5.00%

75.00%

100%

30%

50%

5.00%

50.00%

98%

25%

30%

5.00%

30.00%

98%

20%

25%

5.00%

25.20%

96.80%

16%

20%

5.00%

20.40%

95.60%

11%

16%

5.00%

15.60%

94.40%

6%

11%

5.00%

10.80%

93.20%

6%

6%

5.00%

10

6.00%

92%

6%

6%

5.00%

Enter growth rate in stable growth perio

6.00%

(in percent)

Enter COGS as % of Revenue in stable p

92.00%

(in percent)

Enter Working Capital as % of Revenue i

5.00%

(in percent)

Will the beta change in the stable perio

Yes

(Yes or No)

If yes, enter the beta for stable period =

Compounded Av

42%

Do you want to change the debt ratio in the stable gr

Yes

(Yes or No)

If yes, enter the debt ratio for the stable growth peri

15%

(in percent)

Will the cost of debt change in the stabl

If yes, enter the new cost of debt =

Page

Yes

(Yes or No)

8.00%

( in percent)

General FCFF Discount Model

Capital Spending and Depreciation in Stable growth period

Is capital spending to be offset by depreciation in sta
If no, enter capital expenditures as % of depreciation

Page

No

(Yes or No)

110% (in percent: > 100%)

General FCFF Discount Model

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

Warnings
You have entered a negative current EPS. This model will not work

Capital Spending exceeds depreciation by a significant factor

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General FCFF Discount Model

Output from the program

Cost of Equity =

14.90%

Equity/(Debt+Equity ) =

100.00%

After-tax Cost of debt =

5.12%

Debt/(Debt +Equity) =

0.00%

Cost of Capital =

14.90%
1

$1,667.50

$3,335.00

$5,836.25

$8,754.38

$11,380.69

$1,834.25

$3,501.75

$5,836.25

$8,579.29

$11,153.07

$30.00

$52.50

$78.75

$102.38

$128.17

($196.75)

($219.25)

($78.75)

$72.71

$99.44

- EBIT*t

$0.00

$0.00

$0.00

$0.00

$0.00

EBIT (1-t)

($196.75)

($219.25)

($78.75)

$72.71

$99.44

+ Depreciati

$30.00

$52.50

$78.75

$102.38

$128.17

- Capital Sp

$52.50

$78.75

$102.38

$128.17

$154.32

- Chg. Work

$50.03

$83.38

$125.06

$145.91

$131.32

($269.28)

($328.88)

($227.44)

($98.99)

($58.02)

Present Value ($234.36)

($249.11)

($149.93)

($56.80)

($28.97)

NOL

$316.75

$536.00

$614.75

$542.04

$442.60

1.80

1.80

1.80

1.80

1.80

Cost of Equit

14.90%

14.90%

14.90%

14.90%

14.90%

Cost of Debt

5.12%

5.12%

5.12%

5.12%

5.12%

Debt Ratio

0.00%

0.00%

0.00%

0.00%

0.00%

Cost of Capita 14.90%

14.90%

14.90%

14.90%

14.90%

Cum. WACC

1.32020

1.51691

1.74293

2.00263

Revenues
- COGS
- Depreciatio
EBIT

Free CF to Fi

Index

Cost of Capital Computation

Beta

1.14900

Growth Rate in Stable Phase =

6.00%

Page

General FCFF Discount Model

FCFF in Stable Phase =

$1,020.01

Cost of Equity in Stable Phase =

10.50%

Equity/ (Equity + Debt) =

85.00%

AT Cost of Debt in Stable Phase =

5.12%

Debt/ (Equity + Debt) =

15.00%

Cost of Capital in Stable Phase =

9.69%

Value at the end of growth phase =

$27,620.01

Present Value of FCFF in high growth phase =

($64.61)

Present Value of Terminal Value of Firm =

$7,945.42

Value of the firm =

$7,880.81

Market Value of Debt =

$0.00

Market Value of Equity =

$7,880.81

Value of Options Outstanding (See option work $1,721.09

Value of Equity in Common Stock =
Value of Equity per Share =

Page

$6,159.72
$116.75

General FCFF Discount Model

es of growth, an initial
of stable growth.

growth rate.

flows to stockholders.

e high growth period.

n debt and equity)

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General FCFF Discount Model

currency)

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General FCFF Discount Model

ng Capital

of Revenue
Cap Ex lags revenue growth by 2 years
Depreciation lags cap ex by 1 year

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General FCFF Discount Model

ent: > 100%)

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General FCFF Discount Model

e next page.

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General FCFF Discount Model

10

Terminal Year

$14,248.62

###

###

###

###

$24,689.29

$13,792.66

###

###

###

###

$22,714.15

$154.32

$178.39

$197.66

$209.52

$222.09

$235.42

$301.63

$576.44

$674.93

$0.00

$156.77

$242.97

$367.56

$490.23

$626.30

$301.63

$419.67

$431.95

$653.43

$871.52

$1,113.42

$154.32

$178.39

$197.66

$209.52

$222.09

$235.42

$178.39

$197.66

$209.52

$222.09

$235.42

$258.96

$143.40

$145.34

$133.81

$107.09

$65.92

$69.88

$134.16

$255.07

$286.28

$533.77

$792.27

$1,020.01

$58.89

$99.39

$99.94

$168.43

$227.91

$140.96

$0.00

$0.00

$0.00

$0.00

1.64

1.48

1.32

1.16

1.00

1.00

14.02%

13.14%

12.26%

11.38%

10.50%

10.50%

5.12%

5.12%

5.12%

5.12%

5.12%

5.12%

3.00%

6.00%

9.00%

12.00%

15.00%

15.00%

13.75%

12.66%

11.62%

10.63%

9.69%

9.69%

2.27805

2.56642

2.86457

3.16904

3.47622

$1,020.99 $1,361.75

Page

$1,739.73

General FCFF Discount Model

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General FCFF Discount Model

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General FCFF Discount Model

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General FCFF Discount Model

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General FCFF Discount Model

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General FCFF Discount Model

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General FCFF Discount Model

minal Year

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General FCFF Discount Model

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