FCFF Stable Model

FCFF STABLE GROWTH MODEL

This model is designed to value a stable firm on the basis of

free cashflows to firm.

Assumptions in the model:

1. The firm is in steady state and will grow at a stable rate forever.
2. The firm's leverage is known and constant.

User defined inputs

The user has to define the following inputs to the model:
1. Current EBIT and tax rate
2. Capital Spending and Depreciation
3. Change in working capital
4. Debt ratio
5. Cost of Equity or Inputs to the CAPM (Beta, Riskfree rate, Risk Premium) and Cost of Debt
6. Expected Growth Rate in free cashflows to firm forever.

Page
 FCFF Stable Model

Please enter inputs to the model:

Current EBIT $1,535.00 (in currency)
Current tax rate = 36%

Capital Expenditures $550.00 (in currency)

Depreciation = $400.00 (in currency)
Change in Working Capital = $160.00 (in currency) If negative, enter zero.
Do you want to change the capital expenditure/depreciation ratio? Yes (Yes or No)
If so, enter capital expenditures as a percent of depreciation 125%
Debt ratio = 29.97% ( in percent)

Are you directly entering the cost of equity? (Yes or No) No

If yes, enter cost of equity = (in percent)
If no, enter the inputs for the CAPM
Beta of the stock = 1.1
Riskfree rate = 7% (in percent)
Risk Premium= 5.50% (in percent)

Enter the cost of debt = 8.50% This is a pre-tax cost of borrowing.

Expected Growth Rate = 5% (in percent) The expected growth rate for a stable firm
cannot be significantly higher than the nominal
growth rate in the economy in which the firm
operates. It can be lower.

Page
 FCFF Stable Model

Warnings:

Page
 FCFF Stable Model

This is the output from the Model

Firm Details: from inputs on prior page

EBIT (1- tax rate) = $982.40

- (Capital Spending - Depreciation) $100.00

- Change in Working Capital $160.00

Free Cashflow to Firm = $722.40

Cost of Equity = 13.05%

Cost of Debt = 5.44%

Cost of Capital = 10.77%

Expected Growth rate = 5.00%

Value of Firm $13,147.56

Value vs. Expected Growth

Growth rate Value $22,500.00
7.00% $20,507.03
6.00% $16,055.75 $20,000.00
5.00% $13,147.56 $17,500.00
Value of Stock

4.00% $11,098.61
3.00% $9,577.10 $15,000.00
2.00% $8,402.60 $12,500.00
1.00% $7,468.55
$10,000.00
$7,500.00
$5,000.00
$2,500.00
$0.00
7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00%
Page
Expected Growth Rate
Value o
$10,000.00
$7,500.00
FCFF Stable Model
$5,000.00
$2,500.00
$0.00
7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00%
Expected Growth Rate

Page
 FCFF Stable Model

of

Page
 FCFF Stable Model

or a stable firm
er than the nominal
in which the firm

Page
FCFF Stable Model

Page
 FCFF Stable Model

owth

% 3.00% 2.00% 1.00%

Page
owth Rate
 FCFF Stable Model

% 3.00% 2.00% 1.00%

owth Rate

Page