2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Assumptions:
Sales Growth Rate % 0.508 0.450 0.400 0.400 0.400 0.350 0.300 0.250 0.200 0.150 0.100
Operating Margin % of Sales -0.02 -0.01 -0.01 0.02 0.04 0.08 0.1 0.12 0.15 0.15 0.15
Depreciation Exp. % of Sales 0.036 0.034 0.06 0.06 0.06 0.06 0.06 0.07 0.07 0.07 0.06
Marginal Tax Rate %10.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4
Net Working Capital % of Sales20.104 0.114 0.100 0.100 0.100 0.100 0.100 0.100 0.100 0.100 0.100
Gross P&E % of Sales30.087 0.050 0.080 0.080 0.080 0.080 0.080 0.070 0.070 0.060 0.060
WACC (2010 – 2019) %49.31
WACC (Terminal Period) %58.50
Terminal Period Growth Rate % 0.05
Working Capital ($Mil) 112.8 126.4
Cash/Short-Term Investments 103.7 111.2
Minimum Cash (5% of Sales) 8.4 12.65
W Cap Excl. Excess cash 17.5 27.85
Selected Financial Data ($Mil.)
Sales 168
Excess Cash 98.55
Deferred Tax Assets 73.1
PV of Operating Leases622.0
Number of Shares Outstanding 61.8
Valuation:
Sales 168.4 244.2 341.9 478.7 670.2 904.7 1176.2 1470.2 1764.3 2028.9 2231.8
Minus: Δ Net Working Capital710.4 6.3 13.7 19.1 23.5 27.1 29.4 29.4 26.5 20.3
Equals: Enterprise Cash Flow -13.3 -15.2 -17.5 -16.5 1.9 19.9 76.5 129.4 176.4 180.6
PV (2010 – 2019) 0.4
Terminal Value 2889.1
Total Operating Value 2889.5
Plus:
Excess Cash 98.6
Equals: Equity Value 3038.7
Number of Shares 61.8
Equity Value Per Share 49.2
Explanatory Notes:
3Increases faster than depreciation through 2015 to support growth in 3PAR sales and matches depreciation through
the remainder of the forecast period.
4Cost of equity = 0.0265 + 1.21 (0.055), where 0.0265 is the 10 year Treasury bond at the time of the transacton, 1.21
is 3PAR’s beta, and 0.055 is the market premium. Note the WACC is the firm’s cost of equity as 3PAR has no
Projections
Case Study 7-1 Hewlett-Packard’s Valuaton of 3PAR
2Excludes 3PAR excess cash balances.
1A 40% marginal tax rate is used to reflect the full benefit of the 3PAR deferred tax assets to HP.
long-term debt.
7Net Working Capital 17.5 27.85 34.19 47.87 67.02 90.47 117.62 147.02 176.43 202.89 223.18
6PV of annual operating lease expenses discounted at 7% the firm’s estimated cost of debt.
5The cost of equity for comparable firms.