Intrinsic Value of Equity by DDM

Based on the Dividend Discount Model (DDM), Calculate the Present Value of the firm by filling out the blanks of the spreadsheet.
Return on Equity throught the projected years from year 2012 is 20%, Payout ratios are 75% (year 2012 ~ 2016), 65% after year 2016 permanently
Required Rate of Return of the firm is 8%. Ending Balance of the Book value of Equity last year (2011) was $100 million.

A. Projected years by DDM ($ in million) 2012 2013 2014 2015 2016

Book Value of Equity (beginning balance) 100.0 105.0 110.3 115.8 121.6 =100 =C12 =D12 =E12 =F12
+ Earnings (Net Income) of the year 20.0 21.0 22.1 23.2 24.3 =20%*C9 =20%*D9 =20%*E9 =20%*F9 =20%*G9
- Dividends of the year 15.0 15.8 16.5 17.4 18.2 =75%*C10 =75%*D10 =75%*E10 =75%*F10 =75%*G10
= Book Value of Equity (ending balance) 105.0 110.3 115.8 121.6 127.6 =C9+C10-C11 =D9+D10-D1=E9+E10-E1 =F9+F10-F11=G9+G10-G11
Permanent Value - - - - 1,950.9 #N/A
Total Free Cash Flows by DDM 15.0 15.8 16.5 17.4 1,969.1 =C11 =D11 =E11 =F11 =G11+G13

B. Stock Valuation by DDM

Permanent Growth Rate of Dividend after year 2016 (%) 7.00% =20%*(1-65%)
Intrinsic Value of the equity by DDM ($ in million) #N/A
Venture Stock Valuation. Free Cash Flow of Equity (FCFE) Model with AFN & Excess Cash
The Biometrix Corporation has been in operation for one full year (2021). Financial statements follow.
Biometrix’s management is interested in determining the value of the venture as of the end of 2021, in order to sell more shares to investors.
Sales price per unit is expected to remain at $20/unit througout the projected years. Based on the productivity of the fixed assets and the research on customer demand
the projected units sold are expected to grow 50%, 40%, 20%, 10%, 7% for each of the next five years and thereafter to a permanent growth rate of 7 percent annually.
The cost of goods sold and operating expenses are expected to vary with sales but will maintain with the same % of sales at 2021.
Individual asset accounts are expected to grow at the same rate as sales.
Depreciation can be forecasted 8% of net fixed assets since net fixed assets are expected to grow at the same rate as sales growth.
Interest rate of the bank loan is 10% annually and the loan balance would not change throught the project years.
Accounts payable and accrued liabilities are also expected to grow with sales.
Assume the Additional Financing Needed will be covered by new equity financing.

Biometrix’s management is interested in determining the equity value of the venture as of the end of 2021.
Because Biometrix is in its startup life cycle stage, management and venture investors believe that around 40 percent is an appropriate discount rate
until the firm reaches its long-run or perpetuity growth rate.
At that time it will have survived and will become a more typical firm with an estimated cost of equity capital of around 20 percent.
One million shares of common stock are outstanding.

Part I. Projected Financial Statement (5 years)

Sales Projection Actual, 2021 2022 2023 2024 2025 2026

Projected Sales growth (%) 50.0% 40.0% 20.0% 10.0% 7%
Sales Price/unit ($) 20 20 20 20 20 20 #N/A
Units sold (# thousand) 1,000 1,500 2,100 2,520 2,772 2,966 =H26*(1+I24)
BIOMETRIX, INC.
Income Statements ($ in thousand) % of 2021 Sales Actual, 2021 2022 2023 2024 2025 2026
Sales 100.0% 20,000 30,000 42,000 50,400 55,440 59,321 =I25*I26
(Cost of goods sold) -55.0% (11,000) (16,500) (23,100) (27,720) (30,492) (32,626) =$C$30*I29
Gross profit 45.0% 9,000 13,500 18,900 22,680 24,948 26,694 =I29+I30
(Operating expenses) -30.0% (6,000) (9,000) (12,600) (15,120) (16,632) (17,796) =$C$32*I29
(Depreciation) 8% of fixed asset % (400) (600) (840) (1,008) (1,109) (1,186) =-8%*I48
EBIT 2,600 3,900 5,460 6,552 7,207 7,712 =I31+I32+I33
(Interest, 10%) (100) (100) (100) (100) (100) (100) =H35
EBT 2,500 3,800 5,360 6,452 7,107 7,612 =I34+I35
(Taxes, 40%) (1,000) (1,520) (2,144) (2,581) (2,843) (3,045) =-40%*I36
Net income 1,500 2,280 3,216 3,871 4,264 4,567 =I36+I37

Balance Sheets ($ in thousand) % of 2021 Sales Actual, 2021 2022 2023 2024 2025 2026
Required Cash 6.5% 1,300 1,950 2,730 3,276 3,604 3,856 =$C$41*I29
Excess cash - - - 595 2,894 5,948 =I49-I41-I43-I44-I48
Accounts receivable 10.0% 2,000 3,000 4,200 5,040 5,544 5,932 =$C$43*I29
Inventories 10.0% 2,000 3,000 4,200 5,040 5,544 5,932 =$C$44*I29
Total current assets 5,300 7,950 11,130 13,951 17,586 21,668 =SUM(I41:I44)
Gross fixed assets 5,400 8,500 12,340 15,448 17,817 19,973 =I48-I47
Accumulated depreciation (400) (1,000) (1,840) (2,848) (3,957) (5,143) =H47+I33
Net fixed assets 25.0% 5,000 7,500 10,500 12,600 13,860 14,830 =$C$48*I29
Total assets 10,300 15,450 21,630 26,551 31,446 36,498 =I58
Accounts payable 7.5% 1,500 2,250 3,150 3,780 4,158 4,449 =$C$50*I29
Accrued liabilities 5.0% 1,000 1,500 2,100 2,520 2,772 2,966 =$C$51*I29
Bank loan 1,000 1,000 1,000 1,000 1,000 1,000 #N/A
Total current liabilities 3,500 4,750 6,250 7,300 7,930 8,415 =SUM(I50:I52)
AFN (New Common stock issued) - 1,620 3,084 3,084 3,084 3,084 =H54
Common stock 5,300 5,300 5,300 5,300 5,300 5,300 #N/A
Retained earnings 1,500 3,780 6,996 10,867 15,132 19,699 =H56+I38
Total equity 6,800 9,080 12,296 16,167 20,432 24,999 =SUM(I55:I56)
Total liabilities & equity 10,300 15,450 21,630 26,551 31,446 36,498 #N/A

Statements of Cash Flows ($ in thousand) Actual, 2021 2022 2023 2024 2025 2026
Net income 1,500 2,280 3,216 3,871 4,264 4,567 =I38
Depreciation 400 600 840 1,008 1,109 1,186 =-I33
Change in accts receivable (2,000) (1,000) (1,200) (840) (504) (388) =H43-I43
Change in inventories (2,000) (1,000) (1,200) (840) (504) (388) =H44-I44
Change in accts payable 1,500 750 900 630 378 291 =I50-H50
Change in accrued liabilities 1,000 500 600 420 252 194 =I51-H51
CF from operations 400 2,130 3,156 4,249 4,995 5,462 =SUM(I61:I66)
Change in gross fixed assets (5,400) (3,100) (3,840) (3,108) (2,369) (2,157) =H46-I46
CF from investments (5,400) (3,100) (3,840) (3,108) (2,369) (2,157) =I68
Change in bank loan 1,000 - - - - - =I52-H52
Change in new common stock (AFN) - 1,620 1,464 - - - =I54-H54
Change in common stock 5,300 - - - - - #N/A
CF from financing 6,300 1,620 1,464 - - - =SUM(I70:I72)

Net change in cash 1,300 650 780 1,141 2,626 3,306 =I67+I69+I73
Beginning cash - 1,300 1,950 2,730 3,871 6,498 =H41+H42
Ending cash 1,300 1,950 2,730 3,871 6,497 9,804 =I75+I76
Difference from Cash on Balance Sheet - - - 0 (1) 0 =I77-I41-I42

Part II. Venture Stock Valuation by FCFE Model.

FCFE Model ($ in thousand) Actual, 2021 2022 2023 2024 2025 2026
Net income 2,280 3,216 3,871 4,264 4,567 =I61
+ Depreciation 600 840 1,008 1,109 1,186 =I62
- Increase in NWC (1,400) (1,680) (1,176) (706) (543) =(H41+H43+H44-H50-H51)-(I41+I43+I44-I50-I51)
- Increase in CAPEX (3,100) (3,840) (3,108) (2,369) (2,157) =I68
+ Increase in net Debt issued - - - - - =I70
Annual change in free CF (1,620) (1,464) 595 2,299 3,054 =SUM(I84:I88)
Horizon cash flow (2026) - - - - 25,133 =I89*(1+7%)/(D93-7%)
Total free cash flows to equity (1,620) (1,464) 595 2,299 28,186 =I89+I90
Cost of Equity at Start up stage 40% #N/A
Cost of Equity at Early-maturity stage 20% #N/A
Present Value of the Venture 4,152 =NPV(D92,E91:I91)
Number of shares outstanding (# in thousand) 1,000 #N/A
Per Share Value 4.15 =D94/D95