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# harman - FCFF VALUATION MODEL Before you start The...

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FCFF VALUATION MODEL Before you start The spreadsheet has circular reasoning. This is not a problem. Go into calculation options (in excel) and check the iteration box. What the model d This model is designed to value firms with operating income that is either positive or can be normalized to be positive. It allows for up to 15 years of high growth, and can be used either as a 2-stage or a 3-stage model. Inputs The inputs are in the following pages: financial statements, and review and change the inputs for the valuation. 3. If you have R&D or operating leases, you will need to input the required numbers in those worksheets. Important: Be consistent about the units you use. If you use millions, use millions for all of your inputs. Options The spreadsheet can be used to value a company, with fixed inputs for a high growth phase and different inputs for a stable growth phase (2-stage model) or it can be adjusted to allow for a transition phase (3-stage model). To switch from one to the other, enter yes in the master input page to the question of whether you want the inputs adjusted during the second half of the high growth phase. You can even make it a stable growth model, by setting the length of the high growth period to zero. Other worksheets There are two other worksheets that you might find useful at the end of this spreadsheet 1. Bottom-up beta estimator: will estimate your levered beta, given an unlevered beta (which you will have to input. 2. Industry averages: Here, you can look up industry averages for variables such as beta, return on capital, reinvestment rates and working capital. Output The output is contained in the valuation model worksheet. 1. The bulk of the inputs are in the master inputs page . Here, you can input the numbers from the current 2. If you want to normalized operating income, use the earnings normalizer worksheet.

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An apology: I apologize for the number of inputs that are required on this sheet. Many of the inputs are required only if you choose the appropriate option, though. If you have negative operating income, you will either have to normalize it to make it positive, or use the highgrowth.xls spreadsheet. Master Input Sheet Do you want to capitalize R&D expenses? No ! Yes or No Go to R&D Converter Do you want to convert operating leases to debt? Yes ! Yes or No Go to Operating lease converter Do you want to normalize operating income? No Go to Earnings Normalizer Inputs From Current Financials Current EBIT = \$386.39 ! If negative, go back and choose to normalize earnings. Current Interest Expense = \$9.60 Current Capital Spending \$174.79 Current Depreciation & Amort'n = \$127.16 Tax Rate on Income = 38.00% Previous year-end Current Revenues = \$3,661.00 3248 Current Non-cash Working Capital = \$330.00 Chg. Working Capital = (\$436.00) revious year-end Book Value of Debt = \$76.55 197.56 Book Value of Equity = \$1,495.00 1231 Cash & Marketable Securities = \$106.00 Value of Non-operating Assets = \$0.00 Market Data for your firm Is your stock currently traded? Yes If yes, enter the following: Current Stock Price = \$84.85 Number of shares outstanding = 65.24
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