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7.45%

$1,682.90

$822.90

10 | 7.16% | $1,830.62

$835.31

PV of cashflows during high growth =

$7,894.66

To compute the present value of the cashflows in years 6 through 10, we have to use the compounded cost of capital over the previous years. To illustrate, the present value of

$1536.80 million in cashflows in year 8 is:

o 1536.80

Present value of cashflow in year 8 =-;-

The final piece of the valuation is the terminal value. To estimate the terminal value, at the end of year 10, we estimate the free cashflow to the firm in year 11:

FCFF11 = EBITU (1-t) (1- Reinvestment Rates^e Growth)/

Terminal Value = FCFFn/ (Cost of capitate Growth - g)

The value of the firm is the sum of the present values of the cashflows during the high growth period, the present value of the terminal value and the value of the non-operating assets that we estimated in illustration 12.9.

PV of cashflows during the high growth phase =$ 7,894.66

+ Cash and Marketable Securities =$ 1,583.00

+ Non-operating Assets (Holdings in other companies) =$ 1,849.00

Value of the firm =$ 38,804.48

Subtracting out the market value of debt (including operating leases) of $14,668.22

million and the value of the equity options (estimated to be worth $1,334.67 million in illustration 12.10) yields the value of the common stock:

Value of equity in common stock = Value of firm - Debt - Equity Options

Dividing by the number of shares outstanding (2047.60 million), we arrive at a value per share o $11.14, well below the market price of $ 26.91 at the time of this valuation.

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