2010-03-03_044211_Pinkerton_.xls - Pinkerton(A A All-equity...

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Pinkerton (A) A. All-equity Cost of Capital Based on Wackenhut's Numbers. Wackenhut Value of equity $ 70.2 no. of shares *share price Value of debt $ 10.6 Book value of debt (as in Assumed tax rate 34% Asset beta 0.81 Asset Beta = Equity beta/ Historical risk premium 7% It is assumed value 14.2% Risk-free rate + asset be B. Projected Pinkerton Free Cash Flows Through 1992 Assumptions 1987 1988 1989 1990 Revenue (percent of 1987) 100.00% 90.00% 80.00% 70.00% Gross margin percentage 8.50% 9.00% 9.50% Operating expenses as percent of sales 6.00% 5.90% 5.80% Net working capital as percent of sales 8.60% 7.40% 6.20% Net property plant & equipment as percent sales 4.00% 4.00% 4.00% Free cash flow Revenue 408.3 367.5 326.6 285.8 Gross margin 31.2 29.4 27.2 Operating expenses 22.0 19.3 16.6 EBIT 9.2 10.1 10.6 Tax at 34% 3.1 3.4 3.6 EBIT(1-T) 6.1 6.7 7.0 Net working capital 38.8 31.6 24.2 17.7 Change in net working capital (7.2) (7.4) (6.5) Net pp&e 17.6 14.7 13.1 11.4 Change in net pp&e (2.9) (1.6) (1.6) Free cash flow 16.2 15.7 15.1 PV Free cash flow at All-Equity Cost of Capital $ 44.6 C. Estimated Continuing Value Perpetual growth rate (g) 0% 2% 2% Perpetual spread (r-k) 0% 1% 2% PV of terminal value 33.4 34.4 34.7 Estimated base case continuing value at time 0 $ 36.0 D. Value of Incremental Improvements to CCP Improved gross margin - 1.2 1.5 Increase in taxes at 34% tax rate - 0.4 0.5 Increased income after tax = increased FCF - 0.8 1.0 $3.1 $14.8 Present value of terminal value $7.6 Value of incremental improvements $10.7 All-equity cost of capital, K A

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