EnCom Stage 1
End of Period 0 1 2 3 4 5
Discount Factor at 10% 1.0000 0.9091 0.8264 0.7513 0.6830 0.6209
DCF Valuation
Cash Inflows 0 600 1,200 1,200 1,200 1,200
Cash Outflows -1,720 -720 -720 -720 -720 0
Free Cash Flow -1,720 -120 480 480 480 1,200
DCF -1,720.00 -109.09 396.69 360.63 327.85 745.11
DCF Valuation 2,059.87
IRR 14.76%
0 1 2 3 4 5
Income Statement
Revenue 0 1,200 1,200 1,200 1,200 1,200
Cost of Goods Sold 720 720 720 720 720
Depreciation 0 200 200 200 200 200
Net Income 0 280 280 280 280 280
Dividends -1,720 -120 480 480 480 1,200
Balance Sheet
Accounts Receivable 0 600 600 600 600 600
Inventory 720 720 720 720 720 0
PP&E 1,000 800 600 400 200 0
Book Value of Equity 1,720 2,120 1,920 1,720 1,520 600
ROE 16.28% 13.21% 14.58% 16.28% 18.42%
0 1 2 3 4 5
Residual Income Valuation
Discounted Residual Income 98.18 56.20 66.12 73.77 79.48
Residual Income Valuation 2,059.87
6
0.5645
600
0
600
338.68
6
0
0
0
0
600
0
0
0
0
6
-60
-33.87
EnCom Stage 2 – Expensing Marketing Costs as Incurred
End of Period 0 1 2 3 4 5
Discount Factor at 10% 1.0000 0.9091 0.8264 0.7513 0.6830 0.6209
DCF Valuation
Cash Inflows 0 750 1,350 1,350 1,200 1,200
Cash Outflows -1,720 -1,020 -720 -720 -720 0
Free Cash Flow -1,720 -270 630 630 480 1,200
DCF -1,720.00 -245.45 520.66 473.33 327.85 745.11
DCF Valuation 2,160.17
IRR 16.03%
0 1 2 3 4 5
Income Statement
Revenue 0 1,350 1,350 1,350 1,200 1,200
Cost of Goods Sold 720 720 720 720 720
Depreciation 0 200 200 200 200 200
Marketing Costs 300 0 0 0 0
Net Income 0 130 430 430 280 280
Dividends -1,720 -270 630 630 480 1,200
Balance Sheet
Accounts Receivable 0 600 600 600 600 600
Inventory 720 720 720 720 720 0
PP&E 1,000 800 600 400 200 0
Book Value of Equity 1,720 2,120 1,920 1,720 1,520 600
0 1 2 3 4 5
Residual Income Valuation (expense marketing costs as incurred)
Residual Income -42 218 238 108 128
Discounted Residual Income -38.18 180.17 178.81 73.77 79.48
Residual Income Valuation 2,160.17
6
0.5645
600
0
600
338.68
6
0
0
0
0
0
600
0
0
0
0
6
-60
-33.87
EnCom Stage 2 – Amortizing Marketing Costs of 3 Years
End of Period 0 1 2 3 4 5
Discount Factor at 10% 1.0000 0.9091 0.8264 0.7513 0.6830 0.6209
DCF Valuation
Cash Inflows 0 750 1,350 1,350 1,200 1,200
Cash Outflows -1,720 -1,020 -720 -720 -720 0
Free Cash Flow -1,720 -270 630 630 480 1,200
DCF -1,720.00 -245.45 520.66 473.33 327.85 745.11
DCF Valuation 2,160.17
IRR 16.03%
0 1 2 3 4 5
Income Statement
Revenue 0 1,350 1,350 1,350 1,200 1,200
Cost of Goods Sold 720 720 720 720 720
Depreciation 0 200 200 200 200 200
Amortization 100 100 100 0 0
Net Income 0 330 330 330 280 280
Dividends -1,720 -270 630 630 480 1,200
Balance Sheet
Accounts Receivable 0 600 600 600 600 600
Inventory 720 720 720 720 720 0
PP&E 1,000 800 600 400 200 0
0 1 2 3 4 5
Residual Income Valuation (amortizing marketing costs over 3 years)
Residual Income 158 98 128 108 128
Discounted Residual Income 143.64 80.99 96.17 73.77 79.48
Residual Income Valuation 2,160.17
6
0.5645
600
0
600
338.68
6
0
0
0
0
0
600
0
0
0
0
0
6
-60
-33.87
EnCom Stage 2 – Write-Off Marketing Costs in Year 4
End of Period 0 1 2 3 4 5
Discount Factor at 10% 1.0000 0.9091 0.8264 0.7513 0.6830 0.6209
DCF Valuation
Cash Inflows 0 750 1,350 1,350 1,200 1,200
Cash Outflows -1,720 -1,020 -720 -720 -720 0
Free Cash Flow -1,720 -270 630 630 480 1,200
DCF -1,720.00 -245.45 520.66 473.33 327.85 745.11
DCF Valuation 2,160.17
IRR 16.03%
0 1 2 3 4 5
Income Statement
Revenue 0 1,350 1,350 1,350 1,200 1,200
Cost of Goods Sold 720 720 720 720 720
Depreciation 0 200 200 200 200 200
Write-Off 0 0 0 300 0
Net Income 0 430 430 430 -20 280
Dividends -1,720 -270 630 630 480 1,200
Balance Sheet
Accounts Receivable 0 600 600 600 600 600
Inventory 720 720 720 720 720 0
PP&E 1,000 800 600 400 200 0
0 1 2 3 4 5
Residual Income Valuation (write-off marketing costs in year 4)
Residual Income 258 188 208 -222 128
Discounted Residual Income 234.55 155.37 156.27 -151.63 79.48
Residual Income Valuation 2,160.17
6
0.5645
600
0
600
338.68
6
0
0
0
0
0
600
0
0
0
0
0
6
-60
-33.87