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• Kunal Mehta

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Balance Sheet ($ in millions) ASSETS Cash Accounts receivable Inventories

LIABILITIES and EQUITY 5 Accounts payable 31 and other accruals 66

35

Current assets

102 Long-term debt

140

Net fixed assets

208 Equity

135

Total assets

310 Total liability and equity

310

Source: Casewriter.

Sales Operating expenses (excluding depreciation) EBITDA Depreciation EBIT Interest expenses Profit before taxes Taxes Net profit

2011 310 218 92 30 62 14 48 19 29

Cash Accounts receivable Inventories Current assets Net fixed assets Total assets Accounts payable and other accruals Long-term debt Equity Total liability and equity

5 31 66 102 208 310 35 140 135 310

Growth Rate Terminal Growth Rate Pre-Tax Operating Margin Operating Working Capital (As % of Sales) Industry Operating Working Capital (As % of Sales) Capital Expenditure Depreciation Effective Tax Rate

3% 20% 20% 14% 35 30 38%

2012 2013

6%

6%

35 31

35 32

Debt-to-Capital Ratio 20% Equity-to-Capital Ratio 80% After Tax Cost of Debt 6% Cost of Equity 13.50% WACC 12% NWC 67 Sales 310 Sales Growth Operating expenses (excluding depreciation) 70% of Sa 218 EBITDA 92 Depreciation (Grows at 1 Million Per Year) 30 EBIT 62 Interest expenses 14 EBT 48 Taxes 19 EAT 29 FCFF EBIAT 43 Add: Depreciation 30 Less: Capex -35 Less: Change in NWC 0 Operating Cash Flow 38 Terminal Value Free Cash Flow for Firm 38 Firm Value 539 Less: Value of Debt 140 Value of Equity 399 FCFE EBIT

62

46 329 6% 230 99 31 68 14 54 20 33

49 348 6% 244 104 32 72 14 58 22 36

47 31 -35 21 64

50 32 -35 -3 45

64

45

68

72

Less: Interest (10% of Debt) Less: Tax EAT Add: Depreciation Less: Capex Less: Change in NWC Less: Change in Debt Operating Cash Flow for Equity Terminal Value Free Cash Flow for Firm Firm Value Less: Value of Debt Value of Equity

14 18 30 30 -35 0 -27 -2

11.34 21 35 31 -35 21 -45 7

6.845 25 41 32 -35 -3 -31 4

7

4

532 140 392

Opening Debt Debt Repaid Closing Debt

140 113.4 68.45 -26.6 -45 -31 113.4 68.45 37.29

2014

2015

5%

5%

35 33

35 34

51 366 5% 256 110 33 77 14 63 24 39

54 384 5% 269 115 34 81 14 67 26 42

53 33 -35 -2 48 48

56 34 -35 -3 52 596 648

77

81

3.729 3.72945048 28 29 45 48 33 34 -35 -35 -2 -3 0 0 41 44 436 41 481

37.29 37.2945048 0 0 37.29 37.2945048

Sales EBITDA EBIT Net profit Book value of equity Number of shares outstanding (Million) Share price (average over the year) Ratio of equity to total capital at market value Market Cap Debt Value Beta coefficient (equity beta or leveraged beta) PE Multiple EBIT Multiple EBITDA Multiple Sales Multiple Value Based on Market Multiples Using PE Using EBIT Multiple Using EBITDA Multiple Using Sales Mutliple Sales Operating expenses (excluding depreciation) EBITDA Depreciation EBIT Interest expenses Profit before taxes Taxes

Net profit

SAC 500 152 99 51 216 25 50 80% 1250 312.5 1.30

NEC 590 174 113 59 295 20 30 80% 600 150 1.30

Average

24.51 15.78 10.28 3.13

10.17 6.64 4.31 1.27

17.34 11.21 7.29 2.20

Firm Value Equity Value 643 503 695 555 671 531 681 541 310 218 92 30 62 14 48 19

29

EBITDA MultiplePE Mutliple Nelson Acquisition of Belmon 5.2 11.5 EBITDA 92 EAT 29 Firm Value Equity Value 478.4 EBITDA 338.4 PE 473.5 333.5

Exhibit 2 Selected Financial Data (2004) for South Atlantic Corporation (SAC) and Nelson Equipment Corporation (NEC)

Sales EBITDA EBIT Net profit Book value of equity Number of shares outstanding Share price (average over the year) Ratio of equity to total capital at market value Beta coefficient (equity beta or leveraged beta) Source: Casewriter.

SAC $500 million $152 million $99 million $51 million $216 million 25 million

NEC $590 million $174 million $113 million $59 million $295 million 20 million

$50 80%

$30 80%

1.30

1.30

Exhibit 3 Selected Capital Markets Information as of January 2005

3-month Treasury bill rate

3.4%

10-year Treasury bond rate

5.7%

Equity market premium

6.0%

Interest rate on LMC long-term debt

8.0%

Source: Casewriter.