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
Revenue $1,000 $1,200 $1,400 $1,500
Cost of Goods Sold 500 600 700 750
Gross Profit 500 600 700 750
SG&A 300 350 400 425
R&D 25 30 35 40
Net Cash Flow
Discount Period in Years
(a) Discount Factor
(b) Discount Rate
(c) Perpetual Growth Rate
(d) Terminal Value
(e) Present Value – Cash Flow/Terminal Value
Net Present Value
Notes:
(a) Reflects end-of-year discounting convention.
(b) 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.
(c) Based upon estimated long term cash flow growth rate of the economy in general (as assumed in the Case Study).
(d) 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 to Net
Income for CY+1, CY+2, CY+3, and Terminal Year.
(Move this text box out of the way).
Calculate Net Present Value. Follow the steps on
the Case Study and in the Valuation chapter. (Move
this text box out of the way).
Depreciation & Amortization 25 25 25 25
Interest Expense 0 0 0 0
Effective Tax Rate 40.0% 40.0% 40.0% 40.0%
Income Tax Expense 60 78 96 104
Net Income $90 $117 $144 $156
Valuation Analysis as of December 31 of the Current Year
Market Approach
$’s In Thousands Comparable Businesses
Charlie’s
Sporting
Goods
Mary’s
Sporting
Goods
Jamie’s
Sporting
Goods
Duke’s
Sporting
Goods
Total Revenues (CY) $1,000 $2,000 $5,000
Total Expenses (CY) 900 1,850 4,200
Net Income 100 150 800
Current Assets (minus inventory) 100 250 500
Current Liabilities 100 150 2,000
Current Ratio
Quick Ratio
P/R Ratio
P/E Ratio
Previous Transaction
(1) % of business transacted 5% 100% 8%
Transaction Price $60 $3,000 $500
Date of Transaction CY CY CY
(2) % of business transacted 100% NA NA
Transaction Price $1,500 NA NA
Date of Transaction CY-2 NA NA