The Duke’s Sporting Goods Store
Valuation Analysis as of December 31 of the Current Year
Discounted Cash Flow Analysis
$’s In Thousands Projected (a)
FYE FYE FYE
Fiscal Year Ending
FYE FYE FYE Terminal
CY-3 CY-2 CY-1 Current Year CY+1 CY+2 CY+3 Year
Cost of Goods Sold 500 600 700 750 $773 $796 $820
Gross Profit 500 600 700 750 773 796 820
R&D 25 30 35 40 $41 $42 $44
EBITDA 175 220 265 285 294 302 311
Depreciation & Amortization 25 25 25 25 25 25 25
EBIT 150 195 240 260 269 277 286
Interest Expense 0 0 0 0 000
EBT 150 195 240 260 269 277 286
Effective Tax Rate 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
Income Tax Expense 60 78 96 104 107 111 115
Discount Period in Years 0.00 1.00 2.00 3.00
(a) Discount Factor 1.0000 0.8621 0.7432 0.6407 0.6407
(b) Discount Rate 16.0%
(c) Perpetual Growth Rate 3.5%
(d)
Terminal Value
$1,009
(e)
Present Value – Cash Flow/Terminal Value $106 $96 $87 $78 $646
Net Present Value $1,013
Reflects end-of-year discounting convention.
Based upon the Weighted Average Cost of Capital as reported in Ibbotson‘s Cost of Capital Yearbook (data through June 2006) for SIC 3949 adjusted for other risks.
Based upon estimated long term cash flow growth rate of the economy in general (as assumed in the Case Study).
Terminal Value = (Terminal Year Cash Flow / (Discount Rate – Perpetual Growth Rate))
(e)
Present value to end of current year.
Sources: Fiscal Year Ending (FYE) CY from audited financial statements and business forecasts.
Forecast the Income Statement here to get
Calculate Net Present Value. Follow the steps
The Duke’s Sporting Goods Store
Valuation Analysis as of December 31 of the Current Year
Market Approach
$’s In Thousands Comparable Businesses
Charlie’s
Sporting
Goods
Jamie’s
Sporting
Goods
Total Revenues (CY) $1,000 $2,000 $5,000 1,500
Total Expenses (CY) 900 1,850 4,200 1,344
Net Income 100 150 800 156
Current Assets (minus inventory) 100 250 500 125
Current Liabilities 100 150 2,000 150
Current Ratio 4.0 5.3 1.0 3.5
Quick Ratio 1.0 1.7 0.3 0.8
Net Profit Margin 0.10 0.08 0.16 0.10
P/R Ratio 1.5 1.5 1.56 1.50
P/E Ratio 15.0 20.0 9.77 15.0
Previous Transaction FMV 2,250
(1) % of business transacted 5% 100% 8% FMV 2,340
Transaction Price $60 $3,000 $500 FMV (final) 2,300
Date of Transaction CY CY CY
Transaction Price $1,500 NA NA
Date of Transaction CY-2 NA NA
Assets
Cash $100,000
Inventory $200,000
A/R $10,000
Liabilities