In regards to using these spreadsheets:
1) Chapter 9’s valuations are contained in “PreMDM”, “PrePDM” and “PreDDA” where the proceeds of any offering are not placed on the initial balance sheet
2) Chapter 10’s Learning Supplement extensive example of a post-money approach (where the procees are placed on the balance sheet) is in the worksheet titled “PostPDM”
3) Chapter 10’s Learning Supplement example of a post-money DDA is contained in the worksheet titled “PostDDA”
4) Each worksheet also contains the “Enterprise Method” version treated in Chapter 13.
PDC COMPANY VALUATION MODELS (Illustrated in Chapters 9 and 13)
Modified Pre-Money Financial Statements for Maximum Dividends – No Proceeds on the Balance Sheet
Target LT Debt /MVE 30.0%
LT Debt Interest Rate 10.0%
Venture Stage Equity Discount Rate 25%
Terminal Stage Equity Discount Rate 18%
Excess Cash Interest 0%
Tax Rate 30%
Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Sales 552,000 1,656,000 2,000,000 2,800,000 2,968,000 3,146,080 3,334,845 3,534,935
(Growth Rates) 20.8% 40.0% 6.0% 6.0% 6.0% 6.0%
Income Statements Historical Projected Projected Projected Projected Projected Projected Projected
Sales 552,000 1,656,000 2,000,000 2,800,000 2,968,000 3,146,080 3,334,845 3,534,935
-COGS -386,400 -1,159,200 -1,400,000 -1,960,000 -2,077,600 -2,202,256 -2,334,391 -2,474,455
– Wages and Commissions -105,800 -317,400 -383,333 -536,667 -568,867 -602,999 -639,179 -677,529
– Rent, Miscellaneous and Insurance -47,840 -111,780 -135,000 -189,000 -200,340 -212,360 -225,102 -238,608
– Depreciation -4,600 -5,796 -5,630 -6,800 -9,520 -10,091 -10,697 -11,338
Earnings Before Interest and Taxes (EBIT) 7,360 61,824 76,036 107,533 111,673 118,374 125,476 133,005
– Interest Expense -988 0 0 0 0 -22,664 -24,024 -25,466
Earnings Before Taxes 6,372 61,824 76,036 107,533 111,673 95,709 101,452 107,539
– Taxes 0 -18,547 -22,811 -32,260 -33,502 -28,713 -30,436 -32,262
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
– Dividends -6,487 -65,403 -20,125 0 -288,649 -63,460 -67,268 -71,304
Retained Earnings -115 -22,126 33,100 75,273 -210,477 3,537 3,749 3,974
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Projected Balance Sheets 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
(Debt ratio at
Current Assets (after $6,487 stripped out) long-term rate)
Required Cash 23,000 24,840 30,000 42,000 44,520 47,191 50,023 53,024
Surplus Cash 0 0 0 0 0 0 0 0
Accounts Receivable 46,000 46,000 55,556 77,778 82,444 87,391 92,635 98,193
Merchandise Inventory 97,520 82,800 100,000 140,000 148,400 157,304 166,742 176,747
Prepaid Insurance 2,300 2,300 2,778 3,889 4,122 4,370 4,632 4,910
Total Current Assets 168,820 155,940 188,333 263,667 279,487 296,256 314,031 332,873
Net Property, Plant and Equipment 57,960 56,304 68,000 95,200 100,912 106,967 113,385 120,188
Total Assets 226,780 212,244 256,333 358,867 380,399 403,223 427,416 453,061
0.06 0.06
Current Liabilities
Accounts Payable 33,810 41,400 50,000 70,000 74,200 78,652 83,371 88,373
Accrued Wages and Commissions 11,500 11,500 13,889 19,444 20,611 21,848 23,159 24,548
Total Current Liabilities 45,310 52,900 63,889 89,444 94,811 100,500 106,530 112,922
Long Term Debt 0 0 0 0 226,643 240,241 254,656 269,935
Owners’ Equity 181,470 159,344 192,444 269,422 58,945 62,482 66,231 70,204
Total Liabilities and Equity 226,780 212,244 256,333 358,867 380,399 403,223 427,416 453,061
Accounting Statements of Cash Flows Year 1 Year 2 Year 3 Year 4 Year T=5 Year T Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Cash Flows From Operating Activities
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
Adjustments to Net Income for Cash Flow
+Depreciation Expense 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Change in Prepaid Insurance 1,840 0 -478 -1,111 -233 -247 -262 -278
+Change in Accrued Liabilities 1,725 0 2,389 5,556 1,167 1,237 1,311 1,390
-Change in Inventory 12,880 14,720 -17,200 -40,000 -8,400 -8,904 -9,438 -10,005
+Change in Accounts Payable -4,830 7,590 8,600 20,000 4,200 4,452 4,719 5,002
-Change in Accounts Receivable -9,200 0 -9,556 -22,222 -4,667 -4,947 -5,243 -5,558
Total Adjustments 7,015 28,106 -10,614 -30,978 1,587 1,682 1,783 1,890
Net Cash Flow From Operating Activities 13,387 71,383 42,611 44,296 79,758 68,678 72,799 77,167
Cash Flows From Investing Activities
Capital Expenditures -6,900 -4,140 -17,326 -34,000 -15,232 -16,146 -17,115 -18,142
Net Cash From Investing Activities -6,900 -4,140 -17,326 -34,000 -15,232 -16,146 -17,115 -18,142
Cash Flows from Financing Activities
+ Equity Issues 0 0 0 1,704 0 0 0 6,487.000 0 6487
– Dividends -6,487 -65,403 -20,125 0 -288,649 -63,460 -67,268 -71,304 65,403.000 1 52322.4
(= -Net Dividend) -6,487 -65,403 –20,125 1,704 -288,649 -63,460 -67,268 -71,304 20,125.000 2 12880
+ Debt Issues 0 0 0 0 226,643 13,599 14,414 15,279 –1,704.000 3 -872.448
Net Cash Flows from Financing Activities -6,487 -65,403 -20,125 1,704 -62,006 -49,861 -52,853 -56,024 288,648.000 4 118230.2208
528,833.333 4 216610.1333
Net Change in Cash and Equivalents 0 1,840 5,160 12,000 2,520 2,671 2,831 3,001 405,657.31
Beginning Cash Balance 23,000 23,000 24,840 30,000 42,000 44,520 47,191 50,023
6,487.000 0 6487
Ending Cash Balance 23,000 24,840 30,000 42,000 44,520 47,191 50,023 53,024 65,403.000 1 52322.4
Difference from Balance Sheet 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 20,125.000 2 12880
-1,704.000 3 -872.448
Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7 288,648.000 4 118230.2208
Equity Valuation
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7 528,833.000 4 216609.9968
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277 405,657.17
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Capital Expenditures -6,900 -4,140 -17,326 -34,000 -15,232 -16,146 -17,115 -18,142
-Change in Net Working Capital 2,415 20,470 -21,404 -49,778 -10,453 -11,081 -11,745 -12,450
+Debt Proceeds 0 0 0 0 226,643 13,599 14,414 15,279
Equity VCF (Valuation Cash Flow) 6,487 65,403 20,125 -1,704 288,649 63,460 67,268 71,304
(vs. Dividends – Equity Issues) 6,487 65,403 20,125 -1,704 288,649 63,460 67,268 71,304
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
PV Equity (Excluding Current Equity VCF) 399,170 433,560 521,825 653,985 528,833 560,563 594,197 629,848
Capital Gain on Market Equity 8.6% 20.4% 25.3% -19.1% 6.0% 6.0% 6.0%
Dividend Yield on Market Equity 16.4% 4.6% –0.3% 44.1% 12.0% 12.0% 12.0%
Total Return on Market Equity 25.0% 25.0% 25.0% 25.0% 18.0% 18.0% 18.0%
NPV Equity (Including Current Equity VCF) 405,657 498,962 541,949 652,281 817,481 624,023 661,464 701,152
Enterprise Valuation
EBIT (Earnings Bef. Int. and Taxes) 7,360 61,824 76,036 107,533 111,673 118,374 125,476 133,005
-tax rate*EBIT (except year 0) 0 -18,547 -22,811 -32,260 -33,502 -35,512 -37,643 -39,901
EBIAT (Earnings Bef. Int. After Taxes) 7,360 43,277 53,225 75,273 78,171 82,862 87,833 93,103
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Capital Expenditures -6,900 -4,140 -17,326 -34,000 -15,232 -16,146 -17,115 -18,142
-Change in Net Working Capital 2,415 20,470 -21,404 -49,778 -10,453 -11,081 -11,745 -12,450
Enterprise VCF (Valuation Cash Flow) 7,475 65,403 20,125 -1,704 62,006 65,726 69,670 73,850
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
Long Term Debt / Market Value of Equity 0.0% 0.0% 0.0% 0.0% 30.0% 30.0% 30.0%
After-tax WACC (Wtd. Avg. Cost of Cap.) 25.0% 25.0% 25.0% 25.0% 14.7% 14.7% 14.7%
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
Capital Gain on Market Value of Enterprise 8.6% 20.4% 25.3% 15.5% 6.0% 6.0% 6.0%
Yield on Market Value of Enterprise 16.4% 4.6% -0.3% 9.5% 8.7% 8.7% 8.7%
Total Return on Market Value of Enterprise 25.0% 25.0% 25.0% 25.0% 14.7% 14.7% 14.7%
-Market Value of Debt (End of Period) 0 0 0 0 -226,643 -240,241 -254,656 -269,935
PV Equity (Excluding Current Equity VCF) 399,170 433,560 521,825 653,985 528,833 560,563 594,197 629,848
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
+Current Enterprise VCF 7,475 65,403 20,125 -1,704 62,006 65,726 69,670 73,850
NPV Enterprise (Including Current Ent. VCF) 406,645 498,962 541,949 652,281 817,481 866,530 918,522 973,633
-Interest (Paid During Period) -988 0 0 0 0 -22,664 -24,024 -25,466
+Tax Shield on Current Interest 0 0 0 0 0 6,799 7,207 7,640
-MV Debt (Outstanding at Beginnning) 0 0 0 0 0 -226,643 -240,241 -254,656
NPV Equity (Including Current Flows) 405,657 498,962 541,949 652,281 817,481 624,023 661,464 701,152
Compressed APV / Capital Cash Flows / Before-Tax WACC
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
+ Before-tax Interest 988 0 0 0 0 22,664 24,024 25,466
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Change in Net Working Capital 2,415 20,470 -21,404 -49,778 -10,453 -11,081 -11,745 -12,450
-Capital Expenditures -6,900 -4,140 -17,326 -34,000 -15,232 -16,146 -17,115 -18,142
Capital Cash Flow 7,475 65,403 20,125 -1,704 62,006 72,526 76,877 81,490
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
Long Term Debt / Market Value of Equity 0.0% 0.0% 0.0% 0.0% 30.0% 30.0% 30.0%
Before-tax WACC (Wtd. Avg. Cost of Cap.) 25.00% 25.00% 25.00% 25.00% 15.60% 15.60% 15.60%
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
Market Value of Debt (End of Period) 0 0 0 0 -226,643 -240,241 -254,656 -269,935
PV Equity (Excluding Current Equity VCF) 399,170 433,560 521,825 653,985 528,833 560,563 594,197 629,848
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
+Current Capital Cash Flow (CCF) 7,475 65,403 20,125 -1,704 62,006 72,526 76,877 81,490
– Tax Shield on Current Interest* 0 0 0 0 0 -6,799 -7,207 -7,640
NPV Enterprise (Including Current Ent. VCF) 406,645 498,962 541,949 652,281 817,481 866,530 918,522 973,633
-Interest (Paid During Period) -988 0 0 0 0 -22,664 -24,024 -25,466
+Tax Shield on Current Interest 0 0 0 0 0 6,799 7,207 7,640
-MV Debt (Outstanding at Beginnning) 0 0 0 0 0 -226,643 -240,241 -254,656
NPV Equity (Including Current Equity VCF) 405,657 498,962 541,949 652,281 817,481 624,023 661,464 701,152
*We subtract the tax shield on current interest because we have defined the enterprise flows to exclude the tax shield of interest. While the
discount rate has been adjusted to handle the presence of the tax shield in future flows, the current tax shield must be removed to be
comparable to our enterprise net present valuation.
Initial Shares 200,000
Pre-Money Share Price (excluding 6487) 1.9958495
Pre-Money Share Price (including 6487) 2.0282845
PDC COMPANY VALUATION MODELS
Pre-Money Pseudo Dividend Equity VCF Formula – No Proceeds on the Balance Sheet
Target LT Debt /MVE 30.0%
LT Debt Interest Rate 10.0%
Venture Stage Equity Discount Rate 25%
Terminal Stage Equity Discount Rate 18%
Excess Cash Interest 0%
Tax Rate 30%
Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Sales 552,000 1,656,000 2,000,000 2,800,000 2,968,000 3,146,080 3,334,845 3,534,935
(Growth Rates) 20.8% 40.0% 6.0% 6.0% 6.0% 6.0%
Income Statements Historical Projected Projected Projected Projected Projected Projected Projected
Sales 552,000 1,656,000 2,000,000 2,800,000 2,968,000 3,146,080 3,334,845 3,534,935
-COGS -386,400 -1,159,200 -1,400,000 -1,960,000 -2,077,600 -2,202,256 -2,334,391 -2,474,455
– Wages and Commissions -105,800 -317,400 -383,333 -536,667 -568,867 -602,999 -639,179 -677,529
– Rent, Miscellaneous and Insurance -47,840 -111,780 -135,000 -189,000 -200,340 -212,360 -225,102 -238,608
– Depreciation -4,600 -5,796 -5,630 -6,800 -9,520 -10,091 -10,697 -11,338
Earnings Before Interest and Taxes (EBIT) 7,360 61,824 76,036 107,533 111,673 118,374 125,476 133,005
– Taxes 0 -18,547 -22,811 -32,260 -33,502 -28,713 -30,436 -32,262
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
– Dividends 0 0 0 0 0 0 0 0
Retained Earnings 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
Projected Balance Sheets 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
Accounts Receivable 46,000 46,000 55,556 77,778 82,444 87,391 92,635 98,193
Merchandise Inventory 97,520 82,800 100,000 140,000 148,400 157,304 166,742 176,747
Prepaid Insurance 2,300 2,300 2,778 3,889 4,122 4,370 4,632 4,910
Total Current Assets 175,307 227,830 280,348 353,977 658,446 738,675 823,718 913,863
Net Property, Plant and Equipment 57,960 56,304 68,000 95,200 100,912 106,967 113,385 120,188
Total Assets
233,267 284,134 348,348 449,177 759,358 845,641 937,102 1,034,051
0.11 0.10
Current Liabilities
Accounts Payable 33,810 41,400 50,000 70,000 74,200 78,652 83,371 88,373
Accrued Wages and Commissions 11,500 11,500 13,889 19,444 20,611 21,848 23,159 24,548
Total Current Liabilities 45,310 52,900 63,889 89,444 94,811 100,500 106,530 112,922
Long Term Debt 0 0 0 0 226,643 240,241 254,656 269,935
Owners‘ Equity 187,957 231,234 284,459 359,733 437,904 504,900 575,917 651,194
Total Liabilities and Equity
233,267 284,134 348,348 449,177 759,358 845,641 937,102 1,034,051
Accounting Statements of Cash Flows Year 1 Year 2 Year 3 Year 4 Year T=5 Year T Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Cash Flows From Operating Activities
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
Adjustments to Net Income for Cash Flow
+Depreciation Expense 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Change in Prepaid Insurance 1,840 0 -478 -1,111 -233 -247 -262 -278
Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
Equity Valuation 4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
PV Equity (Excluding Current Equity VCF) 399,170 433,560 521,825 653,985 528,833 560,563 594,197 629,848
NPV Equity (Including Current Equity VCF) 405,657 498,962 541,949 652,281 817,481 624,023 661,464 701,152
Enterprise Valuation
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
Long Term Debt / Market Value of Equity 0.0% 0.0% 0.0% 0.0% 30.0% 30.0% 30.0%
After-tax WACC (Wtd. Avg. Cost of Cap.) 25.0% 25.0% 25.0% 25.0% 14.7% 14.7% 14.7%
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
Capital Gain on Market Value of Enterprise 8.6% 20.4% 25.3% 15.5% 6.0% 6.0% 6.0%
Yield on Market Value of Enterprise 16.4% 4.6% -0.3% 9.5% 8.7% 8.7% 8.7%
Total Return on Market Value of Enterprise 25.0% 25.0% 25.0% 25.0% 14.7% 14.7% 14.7%
-Market Value of Debt (End of Period) 0 0 0 0 -226,643 -240,241 -254,656 -269,935
PV Equity (Excluding Current Equity VCF) 399,170 433,560 521,825 653,985 528,833 560,563 594,197 629,848
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
+Current Enterprise VCF 7,475 65,403 20,125 -1,704 62,006 65,726 69,670 73,850
NPV Enterprise (Including Current Ent. VCF) 406,645 498,962 541,949 652,281 817,481 866,530 918,522 973,633
-Interest (Paid During Period) -988 0 0 0 0 -22,664 -24,024 -25,466
+Tax Shield on Current Interest 0 0 0 0 0 6,799 7,207 7,640
-MV Debt (Outstanding at Beginnning) 0 0 0 0 0 -226,643 -240,241 -254,656
NPV Equity (Including Current Flows) 405,657 498,962 541,949 652,281 817,481 624,023 661,464 701,152
Compressed APV / Capital Cash Flows / Before-Tax WACC
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
+ Before-tax Interest 988 0 0 0 0 22,664 24,024 25,466
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Change in Net Working Capital 2,415 20,470 -21,404 -49,778 -10,453 -11,081 -11,745 -12,450
-Capital Expenditures -6,900 -4,140 -17,326 -34,000 -15,232 -16,146 -17,115 -18,142
Capital Cash Flow 7,475 65,403 20,125 -1,704 62,006 72,526 76,877 81,490
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
Long Term Debt / Market Value of Equity 0.0% 0.0% 0.0% 0.0% 30.0% 30.0% 30.0%
Before-tax WACC (Wtd. Avg. Cost of Cap.) 25.00% 25.00% 25.00% 25.00% 15.60% 15.60% 15.60%
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
Market Value of Debt (End of Period) 0 0 0 0 -226,643 -240,241 -254,656 -269,935
PV Equity (Excluding Current Equity VCF) 399,170 433,560 521,825 653,985 528,833 560,563 594,197 629,848
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
+Current Capital Cash Flow (CCF) 7,475 65,403 20,125 -1,704 62,006 72,526 76,877 81,490
– Tax Shield on Current Interest* 0 0 0 0 0 -6,799 -7,207 -7,640
NPV Enterprise (Including Current Ent. VCF) 406,645 498,962 541,949 652,281 817,481 866,530 918,522 973,633
-Interest (Paid During Period) -988 0 0 0 0 -22,664 -24,024 -25,466
+Tax Shield on Current Interest 0 0 0 0 0 6,799 7,207 7,640
-MV Debt (Outstanding at Beginnning) 0 0 0 0 0 -226,643 -240,241 -254,656
NPV Equity (Including Current Equity VCF) 405,657 498,962 541,949 652,281 817,481 624,023 661,464 701,152
*We subtract the tax shield on current interest because we have defined the enterprise flows to exclude the tax shield of interest. While the
discount rate has been adjusted to handle the presence of the tax shield in future flows, the current tax shield must be removed to be
comparable to our enterprise net present valuation.
Initial Shares 200,000
Pre-Money Share Price (excluding 6487) 1.9958495
Pre-Money Share Price (including 6487) 2.0282845
PDC COMPANY VALUATION MODELS
Pre-Money Delayed Dividend Approximation (DDA including 6487 in year 5) – No Proceeds on the Balance Sheet
Target LT Debt /MVE 30.0%
LT Debt Interest Rate 10.0%
Venture Stage Equity Discount Rate 25%
Terminal Stage Equity Discount Rate 18%
Excess Cash Interest 0%
Tax Rate 30%
Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Sales 552,000 1,656,000 2,000,000 2,800,000 2,968,000 3,146,080 3,334,845 3,534,935
(Growth Rates) 20.8% 40.0% 6.0% 6.0% 6.0% 6.0%
Income Statements Historical Projected Projected Projected Projected Projected Projected Projected
Sales 552,000 1,656,000 2,000,000 2,800,000 2,968,000 3,146,080 3,334,845 3,534,935
-COGS -386,400 -1,159,200 -1,400,000 -1,960,000 -2,077,600 -2,202,256 -2,334,391 -2,474,455
– Wages and Commissions -105,800 -317,400 -383,333 -536,667 -568,867 -602,999 -639,179 -677,529
– Rent, Miscellaneous and Insurance -47,840 -111,780 -135,000 -189,000 -200,340 -212,360 -225,102 -238,608
– Depreciation -4,600 -5,796 -5,630 -6,800 -9,520 -10,091 -10,697 -11,338
Earnings Before Interest and Taxes (EBIT) 7,360 61,824 76,036 107,533 111,673 118,374 125,476 133,005
– Interest Expense -988 0 0 0 0 -22,664 -24,024 -25,466
Earnings Before Taxes 6,372 61,824 76,036 107,533 111,673 95,709 101,452 107,539
– Taxes 0 -18,547 -22,811 -32,260 -33,502 -28,713 -30,436 -32,262
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
– Dividends 0 0 0 0 -378,959 -63,460 -67,268 -71,304
Retained Earnings 6,372 43,277 53,225 75,273 -300,788 3,537 3,749 3,974
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Projected Balance Sheets 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
(Debt ratio at
Current Assets (after $6,487 stripped out) long-term rate)
Required Cash 23,000 24,840 30,000 42,000 44,520 47,191 50,023 53,024
Surplus Cash 6,487 71,890 92,015 90,310 0 0 0 0
Accounts Receivable 46,000 46,000 55,556 77,778 82,444 87,391 92,635 98,193
Merchandise Inventory 97,520 82,800 100,000 140,000 148,400 157,304 166,742 176,747
Prepaid Insurance 2,300 2,300 2,778 3,889 4,122 4,370 4,632 4,910
Total Current Assets 175,307 227,830 280,348 353,977 279,487 296,256 314,031 332,873
Net Property, Plant and Equipment 57,960 56,304 68,000 95,200 100,912 106,967 113,385 120,188
Total Assets 233,267 284,134 348,348 449,177 380,399 403,223 427,416 453,061
0.06 0.06
Current Liabilities
Accounts Payable 33,810 41,400 50,000 70,000 74,200 78,652 83,371 88,373
Accrued Wages and Commissions 11,500 11,500 13,889 19,444 20,611 21,848 23,159 24,548
Total Current Liabilities 45,310 52,900 63,889 89,444 94,811 100,500 106,530 112,922
Long Term Debt 0 0 0 0 226,643 240,241 254,656 269,935
Owners’ Equity 187,957 231,234 284,459 359,733 58,945 62,482 66,231 70,204
Total Liabilities and Equity 233,267 284,134 348,348 449,177 380,399 403,223 427,416 453,061
Accounting Statements of Cash Flows Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Cash Flows From Operating Activities
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
Adjustments to Net Income for Cash Flow
+Depreciation Expense 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Change in Prepaid Insurance 1,840 0-478 -1,111 -233 -247 -262 -278
+Change in Accrued Liabilities 1,725 02,389 5,556 1,167 1,237 1,311 1,390
-Change in Inventory 12,880 14,720 -17,200 -40,000 -8,400 -8,904 -9,438 -10,005
+Change in Accounts Payable -4,830 7,590 8,600 20,000 4,200 4,452 4,719 5,002
-Change in Accounts Receivable -9,200 0-9,556 -22,222 -4,667 -4,947 -5,243 -5,558
Total Adjustments 7,015 28,106 -10,614 -30,978 1,587 1,682 1,783 1,890
Net Cash Flow From Operating Activities 13,387 71,383 42,611 44,296 79,758 68,678 72,799 77,167
Cash Flows From Investing Activities
Capital Expenditures -6,900 -4,140 -17,326 -34,000 -15,232 -16,146 -17,115 -18,142
Net Cash From Investing Activities -6,900 -4,140 -17,326 -34,000 -15,232 -16,146 -17,115 -18,142
Cash Flows from Financing Activities
+ Equity Issues 00000000
– Dividends 0 0 0 0 -378,959 -63,460 -67,268 -71,304
(= -Net Dividend) 0 0 0 0 -378,959 -63,460 -67,268 -71,304
+ Debt Issues 0 0 0 0 226,643 13,599 14,414 15,279
Net Cash Flows from Financing Activities 0 0 0 0 -152,316 -49,861 -52,853 -56,024
Net Change in Cash and Equivalents 6,487 67,243 25,285 10,296 -87,790 2,671 2,831 3,001
Beginning Cash Balance 23,000 29,487 96,730 122,015 132,310 44,520 47,191 50,023
Ending Cash Balance 29,487 96,730 122,015 132,310 44,520 47,191 50,023 53,024
Difference from Balance Sheet 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7 -34640
Equity Valuation 4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Capital Expenditures -6,900 -4,140 -17,326 -34,000 -15,232 -16,146 -17,115 -18,142
-Change in Net Working Capital -4,072 -44,933 -41,529 -48,073 79,857 -11,081 -11,745 -12,450
+Debt Proceeds 0 0 0 0 226,643 13,599 14,414 15,279
Equity VCF (Valuation Cash Flow) 0 0 0 0 378,959 63,460 67,268 71,304
(vs. Dividends – Equity Issues) 0 0 0 0 378,959 63,460 67,268 71,304
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
PV Equity (Excluding Current Equity VCF) 371,831 464,789 580,987 726,233 528,833 560,563 594,197 629,848
Capital Gain on Market Equity 25.0% 25.0% 25.0% -27.2% 6.0% 6.0% 6.0%
Dividend Yield on Market Equity 0.0% 0.0% 0.0% 52.2% 12.0% 12.0% 12.0%
Total Return on Market Equity 25.0% 25.0% 25.0% 25.0% 18.0% 18.0% 18.0%
1.685955
NPV Equity (Including Current Equity VCF) 371,831 464,789 580,987 726,233 907,792 624,023 661,464 701,152
Enterprise Valuation
EBIT (Earnings Bef. Int. and Taxes) 7,360 61,824 76,036 107,533 111,673 118,374 125,476 133,005
-tax rate*EBIT (except year 0) 0 -18,547 -22,811 -32,260 -33,502 -35,512 -37,643 -39,901
EBIAT (Earnings Bef. Int. After Taxes) 7,360 43,277 53,225 75,273 78,171 82,862 87,833 93,103
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Capital Expenditures -6,900 -4,140 -17,326 -34,000 -15,232 -16,146 -17,115 -18,142
-Change in Net Working Capital -4,072 -44,933 -41,529 -48,073 79,857 -11,081 -11,745 -12,450
Enterprise VCF (Valuation Cash Flow) 988 0 0 0 152,316 65,726 69,670 73,850
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
Long Term Debt / Market Value of Equity 0.0% 0.0% 0.0% 0.0% 30.0% 30.0% 30.0%
After-tax WACC (Wtd. Avg. Cost of Cap.) 25.0% 25.0% 25.0% 25.0% 14.7% 14.7% 14.7%
PV Enterprise (Excluding Current Ent. VCF) 371,831 464,789 580,987 726,233 755,475 800,804 848,852 899,783
Capital Gain on Market Value of Enterprise 25.0% 25.0% 25.0% 4.0% 6.0% 6.0% 6.0%
Yield on Market Value of Enterprise 0.0% 0.0% 0.0% 21.0% 8.7% 8.7% 8.7%
Total Return on Market Value of Enterprise 25.0% 25.0% 25.0% 25.0% 14.7% 14.7% 14.7%
-Market Value of Debt (End of Period) 0 0 0 0 -226,643 -240,241 -254,656 -269,935
PV Equity (Excluding Current Equity VCF) 371,831 464,789 580,987 726,233 528,833 560,563 594,197 629,848
PV Enterprise (Excluding Current Ent. VCF) 371,831 464,789 580,987 726,233 755,475 800,804 848,852 899,783
+Current Enterprise VCF 988 0 0 0 152,316 65,726 69,670 73,850
NPV Enterprise (Including Current Ent. VCF) 372,819 464,789 580,987 726,233 907,792 866,530 918,522 973,633
-Interest (Paid During Period) -988 0 0 0 0 -22,664 -24,024 -25,466
+Tax Shield on Current Interest 0 0 0 0 0 6,799 7,207 7,640
-MV Debt (Outstanding at Beginnning) 0 0 0 0 0 -226,643 -240,241 -254,656
NPV Equity (Including Current Flows) 371,831 464,789 580,987 726,233 907,792 624,023 661,464 701,152
Compressed APV / Capital Cash Flows / Before-Tax WACC
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
+ Before-tax Interest 988 0 0 0 0 22,664 24,024 25,466
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Change in Net Working Capital -4,072 -44,933 -41,529 -48,073 79,857 -11,081 -11,745 -12,450
-Capital Expenditures -6,900 -4,140 -17,326 -34,000 -15,232 -16,146 -17,115 -18,142
Capital Cash Flow 988 0 0 0 152,316 72,526 76,877 81,490
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
Long Term Debt / Market Value of Equity 0.0% 0.0% 0.0% 0.0% 30.0% 30.0% 30.0%
Before-tax WACC (Wtd. Avg. Cost of Cap.) 25.00% 25.00% 25.00% 25.00% 15.60% 15.60% 15.60%
PV Enterprise (Excluding Current Ent. VCF) 371,831 464,789 580,987 726,233 755,475 800,804 848,852 899,783
Market Value of Debt (End of Period) 0 0 0 0 -226,643 -240,241 -254,656 -269,935
PV Equity (Excluding Current Equity VCF) 371,831 464,789 580,987 726,233 528,833 560,563 594,197 629,848
PV Enterprise (Excluding Current Ent. VCF) 371,831 464,789 580,987 726,233 755,475 800,804 848,852 899,783
+Current Capital Cash Flow (CCF) 988 0 0 0 152,316 72,526 76,877 81,490
– Tax Shield on Current Interest* 0 0 0 0 0 -6,799 -7,207 -7,640
NPV Enterprise (Including Current Ent. VCF) 372,819 464,789 580,987 726,233 907,792 866,530 918,522 973,633
-Interest (Paid During Period) -988 0 0 0 0 -22,664 -24,024 -25,466
+Tax Shield on Current Interest 0 0 0 0 0 6,799 7,207 7,640
-MV Debt (Outstanding at Beginnning) 0 0 0 0 0 -226,643 -240,241 -254,656
NPV Equity (Including Current Equity VCF) 371,831 464,789 580,987 726,233 907,792 624,023 661,464 701,152
*We subtract the tax shield on current interest because we have defined the enterprise flows to exclude the tax shield of interest. While the
discount rate has been adjusted to handle the presence of the tax shield in future flows, the current tax shield must be removed to be
comparable to our enterprise net present valuation.
Initial Shares 200,000
Pre-Money Share Price (including 6487) 1.8591574
Valuation Difference is only in the Timing of (Crediting for) Dividends
Year 1 Year 2 Year 3 Year 4 Year T=5
Traditional Pre-Money Equity Valuation CF 6,487 65,403 20,125 -1,704 288,649 63,460
DDA Pre-Money Dividends 0 0 0 0 378,959 63,460
Difference 6,487 65,403 20,125 -1,704 -90,310 0
Cumulative Sum of Differences 71,890 92,015 90,310 0 0
NPV of Timing Difference 33,825
PV of Timing Difference (Excl. $6,487) 27,338
NPV Equity: Dividends in Yr. 5 Forward 371,831
+NPV of Timing Difference 33,825
Sum 405,657
Pre-Money NPV Equity: Traditional Equity Methods 405,657
PV Equity: Dividends in Yr. 5 Forward 371,831
+PV of Timing Difference 27,338
Sum 399,170
Pre-Money PV Equity: Traditional Equity Methods 399,170
Initial Shares 200,000
Traditional Pre-Money Share Price (excluding 6487) 1.9958495
Traditional Pre-Money Share Price (including 6487) 2.0282845
DDA Pre-Money Share Price 1.8591574
33825.4295
-0.083
Chapter 10 Scenario-Based Calculations
Paste for calculating % ownership using goal seek
A B C D E F G H I
1
g0.314968921
2r 0.22
3Mean Flow – 400 400 400 2,521,351 1,200 265,774
4Present Value 1,000,000$
A B C D E F G H I
1
g0.314968921
2r0.22
3Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7
4Black Hole 0 0 0 0 0 0 0 0
5 PV BH $0.00
6Living Dead 0 0 0 0 0 2,000 2,000 442,956
7 PV LD $111,460
8Venture Utopia 0 0 2,000 2,000 2,000 12,600,757 0 0
9 PV VU $4,665,619
10
11 (Expected) PV $1,000,000 =0.2*PV BH + 0.6* PV LD +0.2*PV VU
PROBABILITY YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7
Black hole 0.2 0 0 0 0 0 0 0
1,400,000
× g + 2,000
40,000,000
Venture utopia
mean flow
0
0
0
0
2,000
2,000
0.2
0
2,000
2,000
2,000
0
Living dead
0.6
0
PDC COMPANY VALUATION MODELS (Illustrated in Chapters 9 and 13)
Post-Money Alterered Financial Statements for Maximum Dividends – Proceeds on the Balance Sheet
Target LT Debt /MVE 30.0%
LT Debt Interest Rate 10.0%
Venture Stage Equity Discount Rate 25%
Terminal Stage Equity Discount Rate 18%
Excess Cash Interest 0%
Tax Rate 30%
Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Sales 552,000 1,656,000 2,000,000 2,800,000 2,968,000 3,146,080 3,334,845 3,534,935
(Growth Rates) 20.8% 40.0% 6.0% 6.0% 6.0% 6.0%
Income Statements Historical Projected Projected Projected Projected Projected Projected Projected
Sales 552,000 1,656,000 2,000,000 2,800,000 2,968,000 3,146,080 3,334,845 3,534,935
-COGS -386,400 -1,159,200 -1,400,000 -1,960,000 -2,077,600 -2,202,256 -2,334,391 -2,474,455
– Wages and Commissions -105,800 -317,400 -383,333 -536,667 -568,867 -602,999 –639,179 -677,529
– Rent, Miscellaneous and Insurance -47,840 -111,780 –135,000 -189,000 -200,340 -212,360 -225,102 -238,608
– Depreciation -4,600 -5,796 -5,630 –6,800 -9,520 -10,091 -10,697 -11,338
Earnings Before Interest and Taxes (EBIT) 7,360 61,824 76,036 107,533 111,673 118,374 125,476 133,005
– Interest Expense -988 0 0 0 0 -22,664 -24,024 -25,466
Earnings Before Taxes 6,372 61,824 76,036 107,533 111,673 95,709 101,452 107,539
– Taxes 0 -18,547 -22,811 -32,260 -33,502 -28,713 –30,436 -32,262
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
– Dividends -56,487 -65,403 -20,125 –48,296 -288,649 -63,460 -67,268 -71,304
Retained Earnings -50,115 -22,126 33,100 26,978 -210,477 3,537 3,749 3,974
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Projected Balance Sheets 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
(Debt ratio at
Current Assets (after $6,487 stripped out) long-term rate)
Required Cash 23,000 24,840 30,000 42,000 44,520 47,191 50,023 53,024
Surplus Cash 0 0 0 0 0 0 0 0
Accounts Receivable 46,000 46,000 55,556 77,778 82,444 87,391 92,635 98,193
Merchandise Inventory 97,520 82,800 100,000 140,000 148,400 157,304 166,742 176,747
Prepaid Insurance 2,300 2,300 2,778 3,889 4,122 4,370 4,632 4,910
Total Current Assets 168,820 155,940 188,333 263,667 279,487 296,256 314,031 332,873
Net Property, Plant and Equipment 57,960 56,304 68,000 95,200 100,912 106,967 113,385 120,188
Total Assets 226,780 212,244 256,333 358,867 380,399 403,223 427,416 453,061
0.06 0.06
Current Liabilities
Accounts Payable 33,810 41,400 50,000 70,000 74,200 78,652 83,371 88,373
Accrued Wages and Commissions 11,500 11,500 13,889 19,444 20,611 21,848 23,159 24,548
Total Current Liabilities 45,310 52,900 63,889 89,444 94,811 100,500 106,530 112,922
Long Term Debt 0 0 0 0 226,643 240,241 254,656 269,935
Owners’ Equity 181,470 159,344 192,444 269,422 58,945 62,482 66,231 70,204
Total Liabilities and Equity 226,780 212,244 256,333 358,867 380,399 403,223 427,416 453,061
Accounting Statements of Cash Flows Year 1 Year 2 Year 3 Year 4 Year T=5 Year T Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Cash Flows From Operating Activities
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
Adjustments to Net Income for Cash Flow
+Depreciation Expense 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Change in Prepaid Insurance 1,840 0 -478 -1,111 -233 -247 –262 -278
+Change in Accrued Liabilities 1,725 0 2,389 5,556 1,167 1,237 1,311 1,390
-Change in Inventory 12,880 14,720 -17,200 –40,000 -8,400 -8,904 -9,438 -10,005
+Change in Accounts Payable -4,830 7,590 8,600 20,000 4,200 4,452 4,719 5,002
-Change in Accounts Receivable -9,200 0 -9,556 -22,222 -4,667 -4,947 -5,243 -5,558
Total Adjustments 7,015 28,106 -10,614 -30,978 1,587 1,682 1,783 1,890
Net Cash Flow From Operating Activities 13,387 71,383 42,611 44,296 79,758 68,678 72,799 77,167
Cash Flows From Investing Activities
Capital Expenditures -6,900 -4,140 –17,326 -34,000 -15,232 -16,146 -17,115 -18,142
Net Cash From Investing Activities –6,900 -4,140 -17,326 -34,000 -15,232 –16,146 –17,115 -18,142
Cash Flows from Financing Activities
+ Equity Issues 50,000 0 0 50,000 0 0 0 0
– Dividends -56,487 -65,403 -20,125 -48,296 -288,649 -63,460 -67,268 -71,304
(= -Net Dividend) -6,487 -65,403 -20,125 1,704 –288,649 -63,460 -67,268 -71,304
+ Debt Issues 0 0 0 0 226,643 13,599 14,414 15,279
Net Cash Flows from Financing Activities -6,487 -65,403 -20,125 1,704 -62,006 -49,861 -52,853 -56,024
Net Change in Cash and Equivalents 0 1,840 5,160 12,000 2,520 2,671 2,831 3,001
Beginning Cash Balance 23,000 23,000 24,840 30,000 42,000 44,520 47,191 50,023
Ending Cash Balance 23,000 24,840 30,000 42,000 44,520 47,191 50,023 53,024
Difference from Balance Sheet 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
Equity Valuation 4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Capital Expenditures -6,900 -4,140 –17,326 -34,000 -15,232 –16,146 -17,115 -18,142
-Change in Net Working Capital 2,415 20,470 -21,404 -49,778 -10,453 -11,081 -11,745 -12,450
+Debt Proceeds 0 0 0 0 226,643 13,599 14,414 15,279
Equity VCF (Valuation Cash Flow) 6,487 65,403 20,125 -1,704 288,649 63,460 67,268 71,304
(vs. Dividends – Equity Issues) 6,487 65,403 20,125 –1,704 288,649 63,460 67,268 71,304
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
PV Equity (Excluding Current Equity VCF) 399,170 433,560 521,825 653,985 528,833 560,563 594,197 629,848
Capital Gain on Market Equity 8.6% 20.4% 25.3% -19.1% 6.0% 6.0% 6.0%
Dividend Yield on Market Equity 16.4% 4.6% -0.3% 44.1% 12.0% 12.0% 12.0%
Total Return on Market Equity 25.0% 25.0% 25.0% 25.0% 18.0% 18.0% 18.0%
NPV Equity (Including Current Equity VCF) 405,657 498,962 541,949 652,281 817,481 624,023 661,464 701,152
Enterprise Valuation
EBIT (Earnings Bef. Int. and Taxes) 7,360 61,824 76,036 107,533 111,673 118,374 125,476 133,005
-tax rate*EBIT (except year 0) 0 -18,547 -22,811 -32,260 -33,502 -35,512 –37,643 -39,901
EBIAT (Earnings Bef. Int. After Taxes) 7,360 43,277 53,225 75,273 78,171 82,862 87,833 93,103
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Capital Expenditures -6,900 -4,140 –17,326 -34,000 -15,232 –16,146 -17,115 -18,142
-Change in Net Working Capital 2,415 20,470 -21,404 -49,778 -10,453 -11,081 -11,745 -12,450
Enterprise VCF (Valuation Cash Flow) 7,475 65,403 20,125 -1,704 62,006 65,726 69,670 73,850
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
Long Term Debt / Market Value of Equity 0.0% 0.0% 0.0% 0.0% 30.0% 30.0% 30.0%
After-tax WACC (Wtd. Avg. Cost of Cap.) 25.0% 25.0% 25.0% 25.0% 14.7% 14.7% 14.7%
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
Capital Gain on Market Value of Enterprise 8.6% 20.4% 25.3% 15.5% 6.0% 6.0% 6.0%
Yield on Market Value of Enterprise 16.4% 4.6% –0.3% 9.5% 8.7% 8.7% 8.7%
Total Return on Market Value of Enterprise 25.0% 25.0% 25.0% 25.0% 14.7% 14.7% 14.7%
-Market Value of Debt (End of Period) 0 0 0 0 -226,643 -240,241 -254,656 -269,935
PV Equity (Excluding Current Equity VCF) 399,170 433,560 521,825 653,985 528,833 560,563 594,197 629,848
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
+Current Enterprise VCF 7,475 65,403 20,125 -1,704 62,006 65,726 69,670 73,850
NPV Enterprise (Including Current Ent. VCF) 406,645 498,962 541,949 652,281 817,481 866,530 918,522 973,633
-Interest (Paid During Period) –988 0 0 0 0 -22,664 -24,024 -25,466
+Tax Shield on Current Interest 0 0 0 0 0 6,799 7,207 7,640
-MV Debt (Outstanding at Beginnning) 0 0 0 0 0 -226,643 -240,241 -254,656
NPV Equity (Including Current Flows) 405,657 498,962 541,949 652,281 817,481 624,023 661,464 701,152
Compressed APV / Capital Cash Flows / Before-Tax WACC
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
+ Before-tax Interest 988 0 0 0 0 22,664 24,024 25,466
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Change in Net Working Capital 2,415 20,470 -21,404 -49,778 -10,453 -11,081 -11,745 -12,450
-Capital Expenditures -6,900 -4,140 –17,326 -34,000 -15,232 –16,146 -17,115 -18,142
Capital Cash Flow 7,475 65,403 20,125 -1,704 62,006 72,526 76,877 81,490
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
Long Term Debt / Market Value of Equity 0.0% 0.0% 0.0% 0.0% 30.0% 30.0% 30.0%
Before-tax WACC (Wtd. Avg. Cost of Cap.) 25.00% 25.00% 25.00% 25.00% 15.60% 15.60% 15.60%
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
Market Value of Debt (End of Period) 0 0 0 0 -226,643 -240,241 -254,656 –269,935
PV Equity (Excluding Current Equity VCF) 399,170 433,560 521,825 653,985 528,833 560,563 594,197 629,848
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
+Current Capital Cash Flow (CCF) 7,475 65,403 20,125 -1,704 62,006 72,526 76,877 81,490
– Tax Shield on Current Interest* 0 0 0 0 0 -6,799 -7,207 -7,640
NPV Enterprise (Including Current Ent. VCF) 406,645 498,962 541,949 652,281 817,481 866,530 918,522 973,633
-Interest (Paid During Period) –988 0 0 0 0 -22,664 -24,024 -25,466
+Tax Shield on Current Interest 0 0 0 0 0 6,799 7,207 7,640
-MV Debt (Outstanding at Beginnning) 0 0 0 0 0 -226,643 -240,241 -254,656
NPV Equity (Including Current Equity VCF) 405,657 498,962 541,949 652,281 817,481 624,023 661,464 701,152
*We subtract the tax shield on current interest because we have defined the enterprise flows to exclude the tax shield of interest. While the
discount rate has been adjusted to handle the presence of the tax shield in future flows, the current tax shield must be removed to be
comparable to our enterprise net present valuation.
Initial Shares 200,000
Pre-Money Share Price (excluding 6487) 1.9958495
Pre-Money Share Price (including 6487) 2.0282845
Post-Money Valuations Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Dividends to All Post-Money Owners (Max Dividends) 56,487 65,403 20,125 48,296 288,649 63,460 67,268 71,304
00000000
Post-Money Equity Valuation Cash Flow 56,487 65,403 20,125 48,296 288,649 63,460 67,268 71,304
PV Post-Money (incl. 6487, excl. current flow) 424,770 465,560 561,825 653,985 528,833 560,563 594,197 629,848
NPV Post-Money (incl. 6487, incl. current flow) 481,257 530,962 581,949 702,281 817,481 624,023 661,464 701,152
Share Distributions Investment % Post-M NPV Shares Share Price
Existing Shares 84.29% 200,000 N/A 25.00%
Round 1 (Year 0) 50,000 10.39% 24,651 2.0282845 Check growth of equity price = discount rate
Round 2 (Year 3) 50,000 5.32% 12,622 3.9614933 (Consistent with accruing all VCFs)
100.00% 237,273
Cross-Check Pre-Money Shares Pre-M NPV/shr PV Prevous VCFs Pre-Money Price Post-Money Price
Round 1 (Year 0) 200,000 2.0282845 0 2.0282845 per share 2.0282845 per share
Round 2 (Year 3) 200,000 3.2614034 0.700090 3.9614933 per share 3.9614933 per share
To exclude the 6487, we can use the NPV of the Post-Money Equity VCF because it includes the proceeds raised at each valuation date.
The only adjustment is to strip the 6487 in the first flow.
NPV Post-Money (excl. 6487, incl current flow) 474,770 530,962 581,949 702,281 817,481 624,023 661,464 701,152
Share Distributions Investment % Post-M NPV Shares Share Price
Existing Shares 84.08% 200,000 N/A 25.00%
Round 1 (Year 0) 50,000 10.53% 25,052 1.9958495 Check growth of equity price = discount rate
Round 2 (Year 3) 50,000 5.39% 12,827 3.8981437 (Consistent with accruing all VCFs)
100.00% 237,879
Cross-Check Pre-Money Shares Pre-M PV/shr PV Previous VCFs Pre-Money Price Post-Money Price
Round 1 (Year 0) 200,000 1.9958495 0 1.9958495 per share 1.9958495 per share
Round 2 (Year 3) 200,000 3.2614034 0.636740 3.8981437 per share 3.8981437 per share
PDC COMPANY VALUATION MODELS
Post-Money Pseudo Dividend Equity VCF Formula – Proceeds on the Balance Sheet
Target LT Debt /MVE 30.0%
LT Debt Interest Rate 10.0%
Venture Stage Equity Discount Rate 25%
Terminal Stage Equity Discount Rate 18%
Excess Cash Interest 0%
Tax Rate 30%
Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Sales 552,000 1,656,000 2,000,000 2,800,000 2,968,000 3,146,080 3,334,845 3,534,935
(Growth Rates) 20.8% 40.0% 6.0% 6.0% 6.0% 6.0%
Income Statements Historical Projected Projected Projected Projected Projected Projected Projected
Sales 552,000 1,656,000 2,000,000 2,800,000 2,968,000 3,146,080 3,334,845 3,534,935
-COGS -386,400 -1,159,200 -1,400,000 -1,960,000 -2,077,600 -2,202,256 -2,334,391 -2,474,455
– Wages and Commissions -105,800 -317,400 -383,333 -536,667 -568,867 -602,999 –639,179 -677,529
– Rent, Miscellaneous and Insurance -47,840 -111,780 –135,000 -189,000 -200,340 -212,360 -225,102 -238,608
– Depreciation -4,600 -5,796 -5,630 –6,800 -9,520 -10,091 -10,697 -11,338
Earnings Before Interest and Taxes (EBIT) 7,360 61,824 76,036 107,533 111,673 118,374 125,476 133,005
– Interest Expense -988 0 0 0 0 -22,664 -24,024 -25,466
Earnings Before Taxes 6,372 61,824 76,036 107,533 111,673 95,709 101,452 107,539
– Taxes 0 -18,547 -22,811 -32,260 -33,502 -28,713 –30,436 -32,262
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
– Dividends 0 0 0 0 0 0 0 0
Retained Earnings 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Projected Balance Sheets 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
(Debt ratio at
Current Assets (after $6,487 stripped out) long-term rate)
Required Cash 23,000 24,840 30,000 42,000 44,520 47,191 50,023 53,024
Surplus Cash 56,487 121,890 142,015 190,310 478,959 542,419 609,686 680,990
Accounts Receivable 46,000 46,000 55,556 77,778 82,444 87,391 92,635 98,193
Merchandise Inventory 97,520 82,800 100,000 140,000 148,400 157,304 166,742 176,747
Prepaid Insurance 2,300 2,300 2,778 3,889 4,122 4,370 4,632 4,910
Total Current Assets 225,307 277,830 330,348 453,977 758,446 838,675 923,718 1,013,863
Net Property, Plant and Equipment 57,960 56,304 68,000 95,200 100,912 106,967 113,385 120,188
Total Assets 283,267 334,134 398,348 549,177 859,358 945,641 1,037,102 1,134,051
0.10 0.09
Current Liabilities
Accounts Payable 33,810 41,400 50,000 70,000 74,200 78,652 83,371 88,373
Accrued Wages and Commissions 11,500 11,500 13,889 19,444 20,611 21,848 23,159 24,548
Total Current Liabilities 45,310 52,900 63,889 89,444 94,811 100,500 106,530 112,922
Long Term Debt 0 0 0 0 226,643 240,241 254,656 269,935
Owners’ Equity 237,957 281,234 334,459 459,733 537,904 604,900 675,917 751,194
Total Liabilities and Equity 283,267 334,134 398,348 549,177 859,358 945,641 1,037,102 1,134,051
Accounting Statements of Cash Flows Year 1 Year 2 Year 3 Year 4 Year T=5 Year T Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Cash Flows From Operating Activities
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
Adjustments to Net Income for Cash Flow
+Depreciation Expense 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Change in Prepaid Insurance 1,840 0 -478 -1,111 -233 -247 –262 -278
+Change in Accrued Liabilities 1,725 0 2,389 5,556 1,167 1,237 1,311 1,390
-Change in Inventory 12,880 14,720 -17,200 –40,000 -8,400 -8,904 -9,438 -10,005
+Change in Accounts Payable -4,830 7,590 8,600 20,000 4,200 4,452 4,719 5,002
-Change in Accounts Receivable -9,200 0 -9,556 -22,222 -4,667 -4,947 -5,243 -5,558
Total Adjustments 7,015 28,106 -10,614 -30,978 1,587 1,682 1,783 1,890
Net Cash Flow From Operating Activities 13,387 71,383 42,611 44,296 79,758 68,678 72,799 77,167
Cash Flows From Investing Activities
Capital Expenditures -6,900 -4,140 –17,326 -34,000 -15,232 -16,146 -17,115 -18,142
Net Cash From Investing Activities –6,900 -4,140 -17,326 -34,000 -15,232 –16,146 –17,115 -18,142
Cash Flows from Financing Activities
+ Equity Issues 50,000 0 0 50,000 0 0 0 0
– Dividends 0 0 0 0 0 0 0 0
(= -Net Dividend) 50,000 0 0 50,000 0 0 0 0
+ Debt Issues 0 0 0 0 226,643 13,599 14,414 15,279
Net Cash Flows from Financing Activities 50,000 0 0 50,000 226,643 13,599 14,414 15,279
Net Change in Cash and Equivalents 56,487 67,243 25,285 60,296 291,169 66,131 70,099 74,305
Beginning Cash Balance 23,000 79,487 146,730 172,015 232,310 523,479 589,610 659,709
Ending Cash Balance 79,487 146,730 172,015 232,310 523,479 589,610 659,709 734,014
Difference from Balance Sheet 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
Equity Valuation 4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Capital Expenditures -6,900 -4,140 –17,326 -34,000 -15,232 –16,146 -17,115 -18,142
-Change in Net Working Capital 2,415 20,470 -21,404 -49,778 -10,453 -11,081 -11,745 -12,450
+Debt Proceeds 0 0 0 0 226,643 13,599 14,414 15,279
Equity VCF (Valuation Cash Flow) 6,487 65,403 20,125 -1,704 288,649 63,460 67,268 71,304
(vs. Dividends – Equity Issues) -50,000 0 0 -50,000 0 0 0 0
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
PV Equity (Excluding Current Equity VCF) 399,170 433,560 521,825 653,985 528,833 560,563 594,197 629,848
Capital Gain on Market Equity 8.6% 20.4% 25.3% -19.1% 6.0% 6.0% 6.0%
Dividend Yield on Market Equity 16.4% 4.6% -0.3% 44.1% 12.0% 12.0% 12.0%
Total Return on Market Equity 25.0% 25.0% 25.0% 25.0% 18.0% 18.0% 18.0%
NPV Equity (Including Current Equity VCF) 405,657 498,962 541,949 652,281 817,481 624,023 661,464 701,152
Enterprise Valuation
EBIT (Earnings Bef. Int. and Taxes) 7,360 61,824 76,036 107,533 111,673 118,374 125,476 133,005
-tax rate*EBIT (except year 0) 0 -18,547 -22,811 -32,260 -33,502 -35,512 –37,643 -39,901
EBIAT (Earnings Bef. Int. After Taxes) 7,360 43,277 53,225 75,273 78,171 82,862 87,833 93,103
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Capital Expenditures -6,900 -4,140 –17,326 -34,000 -15,232 –16,146 -17,115 -18,142
-Change in Net Working Capital 2,415 20,470 -21,404 -49,778 -10,453 -11,081 -11,745 -12,450
Enterprise VCF (Valuation Cash Flow) 7,475 65,403 20,125 -1,704 62,006 65,726 69,670 73,850
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
Long Term Debt / Market Value of Equity 0.0% 0.0% 0.0% 0.0% 30.0% 30.0% 30.0%
After-tax WACC (Wtd. Avg. Cost of Cap.) 25.0% 25.0% 25.0% 25.0% 14.7% 14.7% 14.7%
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
Capital Gain on Market Value of Enterprise 8.6% 20.4% 25.3% 15.5% 6.0% 6.0% 6.0%
Yield on Market Value of Enterprise 16.4% 4.6% –0.3% 9.5% 8.7% 8.7% 8.7%
Total Return on Market Value of Enterprise 25.0% 25.0% 25.0% 25.0% 14.7% 14.7% 14.7%
-Market Value of Debt (End of Period) 0 0 0 0 -226,643 -240,241 -254,656 -269,935
PV Equity (Excluding Current Equity VCF) 399,170 433,560 521,825 653,985 528,833 560,563 594,197 629,848
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
+Current Enterprise VCF 7,475 65,403 20,125 -1,704 62,006 65,726 69,670 73,850
NPV Enterprise (Including Current Ent. VCF) 406,645 498,962 541,949 652,281 817,481 866,530 918,522 973,633
-Interest (Paid During Period) –988 0 0 0 0 -22,664 -24,024 -25,466
+Tax Shield on Current Interest 0 0 0 0 0 6,799 7,207 7,640
-MV Debt (Outstanding at Beginnning) 0 0 0 0 0 -226,643 -240,241 -254,656
NPV Equity (Including Current Flows) 405,657 498,962 541,949 652,281 817,481 624,023 661,464 701,152
Compressed APV / Capital Cash Flows / Before-Tax WACC
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
+ Before-tax Interest 988 0 0 0 0 22,664 24,024 25,466
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Change in Net Working Capital 2,415 20,470 -21,404 -49,778 -10,453 -11,081 -11,745 -12,450
-Capital Expenditures -6,900 -4,140 –17,326 -34,000 -15,232 –16,146 -17,115 -18,142
Capital Cash Flow 7,475 65,403 20,125 -1,704 62,006 72,526 76,877 81,490
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
Long Term Debt / Market Value of Equity 0.0% 0.0% 0.0% 0.0% 30.0% 30.0% 30.0%
Before-tax WACC (Wtd. Avg. Cost of Cap.) 25.00% 25.00% 25.00% 25.00% 15.60% 15.60% 15.60%
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
Market Value of Debt (End of Period) 0 0 0 0 -226,643 -240,241 -254,656 –269,935
PV Equity (Excluding Current Equity VCF) 399,170 433,560 521,825 653,985 528,833 560,563 594,197 629,848
PV Enterprise (Excluding Current Ent. VCF) 399,170 433,560 521,825 653,985 755,475 800,804 848,852 899,783
+Current Capital Cash Flow (CCF) 7,475 65,403 20,125 -1,704 62,006 72,526 76,877 81,490
– Tax Shield on Current Interest* 0 0 0 0 0 -6,799 -7,207 -7,640
NPV Enterprise (Including Current Ent. VCF) 406,645 498,962 541,949 652,281 817,481 866,530 918,522 973,633
-Interest (Paid During Period) –988 0 0 0 0 -22,664 -24,024 -25,466
+Tax Shield on Current Interest 0 0 0 0 0 6,799 7,207 7,640
-MV Debt (Outstanding at Beginnning) 0 0 0 0 0 -226,643 -240,241 -254,656
NPV Equity (Including Current Equity VCF) 405,657 498,962 541,949 652,281 817,481 624,023 661,464 701,152
*We subtract the tax shield on current interest because we have defined the enterprise flows to exclude the tax shield of interest. While the
discount rate has been adjusted to handle the presence of the tax shield in future flows, the current tax shield must be removed to be
comparable to our enterprise net present valuation.
Initial Shares 200,000
Pre-Money Share Price (excluding 6487) 1.9958495
Pre-Money Share Price (including 6487) 2.0282845
Post-Money Valuations Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Pseudo Dividends to All Post-Money Owners 6,487 65,403 20,125 -1,704 288,649 63,460 67,268 71,304
+Proceeds from Stock Offerings 50,000 0 0 50,000 0 0 0 0
Post-Money Equity Valuation Cash Flow (Pseudo Div) 56,487 65,403 20,125 48,296 288,649 63,460 67,268 71,304
PV Post-Money (incl. 6487, excl. current flow) 424,770 465,560 561,825 653,985 528,833 560,563 594,197 629,848
NPV Post-Money (incl. 6487, incl. current flow) 481,257 530,962 581,949 702,281 817,481 624,023 661,464 701,152
Share Distributions Investment % Post-M NPV Shares Share Price
Existing Shares 84.29% 200,000 N/A 25.00%
Round 1 (Year 0) 50,000 10.39% 24,651 2.0282845 Check growth of equity price = discount rate
Round 2 (Year 3) 50,000 5.32% 12,622 3.9614933 (Consistent with accruing all VCFs)
100.00% 237,273
Cross-Check Pre-Money Shares Pre-M NPV/shr PV Previous VCFs Pre-Money Price Post-Money Price
Round 1 (Year 0) 200,000 2.0282845 0 2.0282845 per share 2.0282845 per share
Round 2 (Year 3) 200,000 3.2614034 0.700090 3.9614933 per share 3.9614933 per share
To exclude the 6487, we can use the NPV of the Post-Money Equity VCF because it includes the proceeds raised at each valuation date.
The only adjustment is to strip the 6487 in the first flow.
NPV Post-Money (excl. 6487, incl current flow) 474,770 530,962 581,949 702,281 817,481 624,023 661,464 701,152
Share Distributions Investment % Post-M NPV Shares Share Price
Existing Shares 84.08% 200,000 N/A 25.00%
Round 1 (Year 0) 50,000 10.53% 25,052 1.9958495 Check growth of equity price = discount rate
Round 2 (Year 3) 50,000 5.39% 12,827 3.8981437 (Consistent with accruing all VCFs)
100.00% 237,879
Cross-Check Pre-Money Shares Pre-M PV/shr PV Previous VCFs Pre-Money Price Post-Money Price
Round 1 (Year 0) 200,000 1.9958495 0 1.9958495 per share 1.9958495 per share
Round 2 (Year 3) 200,000 3.2614034 0.636740 3.8981437 per share 3.8981437 per share
PDC COMPANY VALUATION MODELS
Post-Money Delayed Dividend Approximation (DDA including 6487 in year 5) – Proceeds on the Balance Sheet
Target LT Debt /MVE 30.0%
LT Debt Interest Rate 10.0%
Venture Stage Equity Discount Rate 25%
Terminal Stage Equity Discount Rate 18%
Excess Cash Interest 0%
Tax Rate 30%
Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Sales 552,000 1,656,000 2,000,000 2,800,000 2,968,000 3,146,080 3,334,845 3,534,935
(Growth Rates) 20.8% 40.0% 6.0% 6.0% 6.0% 6.0%
Income Statements Historical Projected Projected Projected Projected Projected Projected Projected
Sales 552,000 1,656,000 2,000,000 2,800,000 2,968,000 3,146,080 3,334,845 3,534,935
-COGS -386,400 -1,159,200 -1,400,000 -1,960,000 -2,077,600 -2,202,256 -2,334,391 -2,474,455
– Wages and Commissions -105,800 -317,400 -383,333 -536,667 –568,867 -602,999 -639,179 -677,529
– Rent, Miscellaneous and Insurance -47,840 –111,780 -135,000 –189,000 -200,340 –212,360 -225,102 -238,608
– Depreciation -4,600 –5,796 -5,630 -6,800 -9,520 -10,091 -10,697 –11,338
Earnings Before Interest and Taxes (EBIT) 7,360 61,824 76,036 107,533 111,673 118,374 125,476 133,005
– Interest Expense -988 0 0 0 0 -22,664 -24,024 -25,466
Earnings Before Taxes 6,372 61,824 76,036 107,533 111,673 95,709 101,452 107,539
– Taxes 0 -18,547 -22,811 -32,260 -33,502 –28,713 -30,436 -32,262
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
– Dividends 0 0 0 0 -478,959 -63,460 -67,268 -71,304
Retained Earnings 6,372 43,277 53,225 75,273 -400,788 3,537 3,749 3,974
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Projected Balance Sheets 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
(Debt ratio at
Current Assets (after $6,487 stripped out) long-term rate)
Required Cash 23,000 24,840 30,000 42,000 44,520 47,191 50,023 53,024
Surplus Cash 56,487 121,890 142,015 190,310 0 0 0 0
Accounts Receivable 46,000 46,000 55,556 77,778 82,444 87,391 92,635 98,193
Merchandise Inventory 97,520 82,800 100,000 140,000 148,400 157,304 166,742 176,747
Prepaid Insurance 2,300 2,300 2,778 3,889 4,122 4,370 4,632 4,910
Total Current Assets 225,307 277,830 330,348 453,977 279,487 296,256 314,031 332,873
Net Property, Plant and Equipment 57,960 56,304 68,000 95,200 100,912 106,967 113,385 120,188
Total Assets 283,267 334,134 398,348 549,177 380,399 403,223 427,416 453,061
0.06 0.06
Current Liabilities
Accounts Payable 33,810 41,400 50,000 70,000 74,200 78,652 83,371 88,373
Accrued Wages and Commissions 11,500 11,500 13,889 19,444 20,611 21,848 23,159 24,548
Total Current Liabilities 45,310 52,900 63,889 89,444 94,811 100,500 106,530 112,922
Long Term Debt 0 0 0 0 226,643 240,241 254,656 269,935
Owners’ Equity 237,957 281,234 334,459 459,733 58,945 62,482 66,231 70,204
Total Liabilities and Equity 283,267 334,134 398,348 549,177 380,399 403,223 427,416 453,061
Accounting Statements of Cash Flows Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Cash Flows From Operating Activities
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
Adjustments to Net Income for Cash Flow
+Depreciation Expense 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Change in Prepaid Insurance 1,840 0 –478 -1,111 -233 -247 –262 –278
+Change in Accrued Liabilities 1,725 0 2,389 5,556 1,167 1,237 1,311 1,390
-Change in Inventory 12,880 14,720 -17,200 -40,000 -8,400 -8,904 -9,438 -10,005
+Change in Accounts Payable -4,830 7,590 8,600 20,000 4,200 4,452 4,719 5,002
-Change in Accounts Receivable -9,200 0 -9,556 –22,222 -4,667 -4,947 -5,243 -5,558
Total Adjustments 7,015 28,106 –10,614 –30,978 1,587 1,682 1,783 1,890
Net Cash Flow From Operating Activities 13,387 71,383 42,611 44,296 79,758 68,678 72,799 77,167
Cash Flows From Investing Activities
Capital Expenditures -6,900 -4,140 -17,326 –34,000 -15,232 -16,146 -17,115 -18,142
Net Cash From Investing Activities -6,900 -4,140 -17,326 -34,000 -15,232 -16,146 -17,115 –18,142
Cash Flows from Financing Activities
+ Equity Issues 50,000 0 0 50,000 0 0 0 0
– Dividends 0 0 0 0 -478,959 -63,460 -67,268 –71,304
(= -Net Dividend) 50,000 0 0 50,000 -478,959 -63,460 -67,268 -71,304
+ Debt Issues 0 0 0 0 226,643 13,599 14,414 15,279
Net Cash Flows from Financing Activities 50,000 0 0 50,000 -252,316 -49,861 -52,853 -56,024
Net Change in Cash and Equivalents 56,487 67,243 25,285 60,296 -187,790 2,671 2,831 3,001
Beginning Cash Balance 23,000 79,487 146,730 172,015 232,310 44,520 47,191 50,023
Ending Cash Balance 79,487 146,730 172,015 232,310 44,520 47,191 50,023 53,024
Difference from Balance Sheet 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
Equity Valuation 4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Capital Expenditures –6,900 –4,140 -17,326 -34,000 -15,232 –16,146 -17,115 -18,142
-Change in Net Working Capital -54,072 -44,933 –41,529 –98,073 179,857 -11,081 -11,745 -12,450
+Debt Proceeds 0 0 0 0 226,643 13,599 14,414 15,279
Equity VCF (Valuation Cash Flow) -50,000 0 0 -50,000 478,959 63,460 67,268 71,304
(vs. Dividends – Equity Issues) –50,000 0 0 -50,000 478,959 63,460 67,268 71,304
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
PV Equity (Excluding Current Equity VCF) 387,191 483,989 604,987 806,233 528,833 560,563 594,197 629,848
Capital Gain on Market Equity 25.0% 25.0% 33.3% -34.4% 6.0% 6.0% 6.0%
Dividend Yield on Market Equity 0.0% 0.0% -8.3% 59.4% 12.0% 12.0% 12.0%
Total Return on Market Equity 25.0% 25.0% 25.0% 25.0% 18.0% 18.0% 18.0%
NPV Equity (Including Current Equity VCF) 337,191 483,989 604,987 756,233 1,007,792 624,023 661,464 701,152
Enterprise Valuation
EBIT (Earnings Bef. Int. and Taxes) 7,360 61,824 76,036 107,533 111,673 118,374 125,476 133,005
-tax rate*EBIT (except year 0) 0 –18,547 -22,811 -32,260 -33,502 -35,512 -37,643 -39,901
EBIAT (Earnings Bef. Int. After Taxes) 7,360 43,277 53,225 75,273 78,171 82,862 87,833 93,103
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Capital Expenditures –6,900 –4,140 -17,326 -34,000 -15,232 –16,146 -17,115 -18,142
-Change in Net Working Capital -54,072 -44,933 –41,529 –98,073 179,857 -11,081 -11,745 -12,450
Enterprise VCF (Valuation Cash Flow) -49,012 0 0 -50,000 252,316 65,726 69,670 73,850
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
Long Term Debt / Market Value of Equity 0.0% 0.0% 0.0% 0.0% 30.0% 30.0% 30.0%
After-tax WACC (Wtd. Avg. Cost of Cap.) 25.0% 25.0% 25.0% 25.0% 14.7% 14.7% 14.7%
PV Enterprise (Excluding Current Ent. VCF) 387,191 483,989 604,987 806,233 755,475 800,804 848,852 899,783
Capital Gain on Market Value of Enterprise 25.0% 25.0% 33.3% –6.3% 6.0% 6.0% 6.0%
Yield on Market Value of Enterprise 0.0% 0.0% -8.3% 31.3% 8.7% 8.7% 8.7%
Total Return on Market Value of Enterprise 25.0% 25.0% 25.0% 25.0% 14.7% 14.7% 14.7%
-Market Value of Debt (End of Period) 0 0 0 0 -226,643 -240,241 –254,656 -269,935
PV Equity (Excluding Current Equity VCF) 387,191 483,989 604,987 806,233 528,833 560,563 594,197 629,848
PV Enterprise (Excluding Current Ent. VCF) 387,191 483,989 604,987 806,233 755,475 800,804 848,852 899,783
+Current Enterprise VCF -49,012 0 0 -50,000 252,316 65,726 69,670 73,850
NPV Enterprise (Including Current Ent. VCF) 338,179 483,989 604,987 756,233 1,007,792 866,530 918,522 973,633
-Interest (Paid During Period) -988 0 0 0 0 -22,664 -24,024 -25,466
+Tax Shield on Current Interest 0 0 0 0 0 6,799 7,207 7,640
-MV Debt (Outstanding at Beginnning) 0 0 0 0 0 -226,643 -240,241 -254,656
NPV Equity (Including Current Flows) 337,191 483,989 604,987 756,233 1,007,792 624,023 661,464 701,152
Compressed APV / Capital Cash Flows / Before-Tax WACC
Net Income 6,372 43,277 53,225 75,273 78,171 66,997 71,016 75,277
+ Before-tax Interest 988 0 0 0 0 22,664 24,024 25,466
+Depreciation and Amortization 4,600 5,796 5,630 6,800 9,520 10,091 10,697 11,338
-Change in Net Working Capital -54,072 -44,933 –41,529 –98,073 179,857 -11,081 -11,745 -12,450
-Capital Expenditures –6,900 –4,140 -17,326 -34,000 -15,232 –16,146 -17,115 -18,142
Capital Cash Flow -49,012 0 0 -50,000 252,316 72,526 76,877 81,490
Today EOY 1 EOY 2 EOY 3 EOY 4 EOY 5=T EOY 6 EOY 7
Valuation Date 7/31/Y0 7/31/Y1 7/31/Y2 7/31/Y3 7/31/Y4 7/31/Y5 7/31/Y6 7/31/Y7
Long Term Debt / Market Value of Equity 0.0% 0.0% 0.0% 0.0% 30.0% 30.0% 30.0%
Before-tax WACC (Wtd. Avg. Cost of Cap.) 25.00% 25.00% 25.00% 25.00% 15.60% 15.60% 15.60%
PV Enterprise (Excluding Current Ent. VCF) 387,191 483,989 604,987 806,233 755,475 800,804 848,852 899,783
Market Value of Debt (End of Period) 0 0 0 0 -226,643 -240,241 -254,656 –269,935
PV Equity (Excluding Current Equity VCF) 387,191 483,989 604,987 806,233 528,833 560,563 594,197 629,848
PV Enterprise (Excluding Current Ent. VCF) 387,191 483,989 604,987 806,233 755,475 800,804 848,852 899,783
+Current Capital Cash Flow (CCF) –49,012 0 0 -50,000 252,316 72,526 76,877 81,490
– Tax Shield on Current Interest* 0 0 0 0 0 -6,799 -7,207 -7,640
NPV Enterprise (Including Current Ent. VCF) 338,179 483,989 604,987 756,233 1,007,792 866,530 918,522 973,633
-Interest (Paid During Period) -988 0 0 0 0 -22,664 -24,024 -25,466
+Tax Shield on Current Interest 0 0 0 0 0 6,799 7,207 7,640
-MV Debt (Outstanding at Beginnning) 0 0 0 0 0 -226,643 -240,241 -254,656
NPV Equity (Including Current Equity VCF) 337,191 483,989 604,987 756,233 1,007,792 624,023 661,464 701,152
*We subtract the tax shield on current interest because we have defined the enterprise flows to exclude the tax shield of interest. While the
discount rate has been adjusted to handle the presence of the tax shield in future flows, the current tax shield must be removed to be
comparable to our enterprise net present valuation.
Initial Shares 200,000
Pre-Money Share Price (including 6487) 1.6859574
Post-Money Valuations Year 1 Year 2 Year 3 Year 4 Year T=5 Year 6 Year 7
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5 8/1/Y5-7/31/Y6 8/1/Y6-7/31/Y7
Equity VCF (including 6487 paid in year 5) -50,000 0 0 -50,000 478,959 63,460 67,268 71,304
+ Equity Issues 50,000 0 0 50,000 0 0 0 0
Post-Money Equity Valuation Cash Flow (incl 6487) 0 0 0 0 478,959 63,460 67,268 71,304
PV Post-Money (incl. 6487, excl. current flow) 412,791 515,989 644,987 806,233 528,833 560,563 594,197 629,848
NPV Post-Money (incl. 6487, incl. current flow) 412,791 515,989 644,987 806,233 1,007,792 624,023 661,464 701,152
Share Distributions Investment % Post-M NPV Shares Share Price
Existing Shares 81.69% 200,000 N/A
Round 1 (Year 0) 50,000 12.11% 29,657 1.6859574
Round 2 (Year 3) 50,000 6.20% 15,184 3.2928856 Check growth of equity price = discount rate
100.00% 244,841 25.00% (Consistent with accruing all VCFs)
Cross-Check Pre-Money Shares Pre-M NPV/shr PV Previous VCFs Pre-Money Price Post-Money Share Price
Round 1 (Year 0) 200,000 1.6859574 0 1.6859574 per share 1.6859574
Round 2 (Year 3) 200,000 3.7811668 -0.48828125 3.2928856 per share 3.2928856
Post-Money VC Shortcut (VCSC) Exit Payoffs % Ownership Shares Shortcut Price
Founder 823,221 81.69% 200,000
Round 1 Investor Requirements 122,070 12.11% 29,657 1.6859574
Round 2 Investor Requirements 62,500 6.20% 15,184 3.2928856
Totals 1,007,792 100.00% 244,841
Alternative to Get to First Round Pre-Money 1.6859574 (Post-Money Time 0 NPV – PV(Proceeds)) / Founder Shares
Alternative to Get to Second Round Pre-Money 3.2928856 (Post-Money Time 3 NPV – PV(Remaining Proceeds)) / (Founder + Round 1 Shares)
Valuation Difference is only in the Timing of (Crediting for) Dividends
Year 1 Year 2 Year 3 Year 4 Year 5
4/1/Y0-7/31/Y0 8/1/Y0-7/31/Y1 8/1/Y1-7/31/Y2 8/1/Y2-7/31/Y3 8/1/Y3-7/31/Y4 8/1/Y4-7/31/Y5
Traditional Post-Money Equity Valuation Cash Flow 56,487 65,403 20,125 48,296 288,649 63,460
DDA Post-Money Valuation Cash Flow 0 0 0 0 478,959 63,460
Difference 56,487 65,403 20,125 48,296 -190,310 0
Cumulative Sum of Differences 121,890 142,015 190,310 0 0
NPV of Timing Difference 68,465
PV of Timing Difference 11,978
Post Money NPV Equity: Dividends in Yr. 5 Forward 412,791
+NPV of Timing Difference 68,465
Sum 481,257
Post Money NPV Equity: Traditional Equity Method 481,257
Post Money PV Equity: Dividends in Yr. 5 Forward 412,791
+PV of Timing Difference 11,978
Sum 424,770
Post Money PV Equity: Traditional Equity Method 424,770
Difference (including 6487) Trad. Shares DDA/VCSC Shares Trad. Price DDA/VSCS Price Price Diff / Share PV Loss Founder Shrs
Viewed at Year 0 Using Round 1 Pricing 24,651 29,657 2.028284549 1.6859574 -0.3423271 -68,465 =200,000*Price Diff
Viewed at Year 0 Using Round 2 Pricing 12,622 15,184 3.96149326 3.2928856 -0.6686077 -68,465 =(200,000*Price Diff)/1.25^3
Conclude: More shares sold at lower prices!
Proceeds and additional dividend flows -50,000 0 0 -50,000 100000
Loss (NPV) from additional surplus penalty -34,640
Pre-Money DDA with pre-money financials (Ch. 9) 371,831 371,831 =200,000*1.8591574
Pre-Money DDA with post-money financials (VCSC) 337,191 337,191 =200,000*1.6859574
Conclude: Post-Money DDA (and, therefore, VC Shortcut) differs from pre-money DDA by the NPV of additional surplus cash penalty on proceeds.
View of NPV Decrease with Post-Money DDA(VCSC) Valuation Shares Splitting Share Price
Traditional Equity Method on Pre-Money Financials & Equity VCF 405,657 200,000 2.028284549 (Checks with Traditional Pre-Money pricing)
– DDA Penalty on Pre-Money Surplus Cash -33,825
= DDA on Pre-Money Financials & Equity VCF 371,831 200,000 1.859157402 (Checks with DDA on Pre-Money Financials)
+ PV of Proceeds 75,600
= DDA on Post-Money Financials w/o Proceeds Penalty 447,431 240,664 1.859157402 (NPV=0 issue since no add’l penalty on proceeds)
– Additional DDA Proceeds Penalty -34,640
= VCSC or DDA on Post-Money Financials & Equity VCF 412,791 244,841 1.685957402 (Given above)