TV Homework Template
Please answer the following question:
1. What percentage the Present Value of Terminal Value contributes to the total Enterpise value?
2. How sensitive is your valuation inputs?
You may use the template attached or create your own. Excel submission is enough.
Enterprise Valuation & Terminal Value
Given Solution Legend
Gross Margin 40% Value given in problem
Fixed Costs $ 2,000 Formula/Calculation/Analysis required
Revenue Growth Rate for Years 1 - 5 10% Crystal Ball Input
FCF Steady Growth 3% Crystal Ball Output
Discount Rate 12%
Year 1 Revenue $ 5,000
Tax Rate 21%
Terminal Year 5
1 2 3 4 5
Revenues
Gross profits
Fixed Costs
Net Operating Income
Taxes
Free Cash Flow
NPV for Years 1-5 Cash Flows
Terminal Value (as of Year 5)
PV of Terminal Value
Enterprise Value
PV of Terminal Value / Enterprise Value
(
)
s
g
WACC
FCF
TV
-
=
6
5
 
s
gWACC
FCF
TV
ï€

6
5
TV Homework
Example - Enterprise Valuation & Terminal Value
Given Solution Legend
Gross Margin 40% Value given in problem
Fixed Costs $ 2,000 Formula/Calculation/Analysis required
Revenue Growth Rate for Years 1 - 5 10% Crystal Ball Input
FCF Steady Growth 3% Crystal Ball Output
Discount Rate 12%
Year 1 Revenue $ 5,000
Tax Rate 35%
Terminal Year 5
1 2 3 4 5
Revenues $ 5,000 $ 5,500 $ 6,050 $ 6,655 $ 7,321
Gross profits 2,000 2,200 2,420 2,662 2,928
Fixed Costs (2,000) (2,000) (2,000) (2,000) (2,000)
Net Operating Income $ - $ 200 $ 420 $ 662 $ 928
Taxes $ - $ (70) $ (147) $ (232) $ (325)
Free Cash Flow $ - $ 130 $ 273 $ 430 $ 603
NPV for Years 1-5 Cash Flows $ 914 <-- =NPV(WACC,D21:H21)
Terminal Value (as of Year 5) $ 6,905 <-- =H21*(1+SteadyGrowth)/(WACC-SteadyGrowth)
PV of Terminal Value $ 3,918 <-- =C24/(1+WACC)^C12
Enterprise Value $ 4,832 <-- =C23+C25
PV of Terminal Value / Enterprise Value 81%
Data for Charts:
Terminal Value / Enterprise Value Input
Variable Downside Upside Range Downside Upside Base Case
Discount Rate 83% 79% 4% 11% 13% 12%
FCF Steady Growth 80% 83% 3% 2% 4% 3%
Revenue Growth Rate for Years 1 - 5 81% 81% 0% 9% 11% 10%
Terminal Value / Enterprise Value
Variable 10.0% 30.0% 50.0% 70.0% 90.0%
Discount Rate 83% 82% 81% 80% 79%
FCF Steady Growth 80% 80% 81% 82% 83%
Revenue Growth Rate for Years 1 - 5 81% 81% 81% 81% 81%
Sensitivity Chart
Terminal Value / Enterprise Value
Discount Rate 0.1 0.3 0.5 0.7 0.9 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX FCF Steady Growth 0.1 0.3 0.5 0.7 0.9 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX Revenue Growth Rate for Years 1 - 5 0.1 0.3 0.5 0.7 0.9 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX Percentiles of the variables
Tornado Diagram
Terminal Value / Enterprise Value
Downside 11%
2%
9%
Discount Rate FCF Steady Growth Revenue Growth Rate for Years 1 - 5 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX Upside 13%
4%
11%
Discount Rate FCF Steady Growth Revenue Growth Rate for Years 1 - 5 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX