1 STEP 1: Forecast earnings and equity book value 2 Income statements as of December 31, Year 1 Year 2 Year 3 Year 4 Year 5 3 4 Revenue () 5 Depreciation expense () 6 Net income (loss) () 7 8 Balance sheets as of December 31, 9 Assets Year 1 Year 2 Year 3 Year 4 Year 5 10 Cash 11 Cars (gross) 12 Accumulated depreciation 13 Trucks (net) 14 Equity 15 Total common equity 16 17 Cash flow statements as of December 31, 18 Operating Year 1 Year 2 Year 3 Year 4 Year 5 19 Receipts from customers 20 Investing 21 Capital expenditures 22 Proceeds from sale of cars 23 Financing 24 Dividends to shareholders 25 Cash at beginning of year 26 Cash at end of year 27 28 STEP 2: Forecast expected future residual earnings 29 Net income (loss) () 30 Beginning equity value 31 Investor required return 10% 10% 10% 10% 10% 32 Required earnings 33 Residual earnings 34 35 STEP 3: Determine the present value of future residual earnings 36 Residual earnings 37 Present value factor 1/(1+0.10) 38 PV of future residual earnings 39 Sum of all present values 40 Beginning equity book value 0,00 0,00 0,00 41 Value of business opportunity 42 43 STEP 4: Compare your valuation to dividend discount model 44 Dividends to shareholders 0 0 45 Present value factor 1/(1+0.10) 0,00 0,00 0,00 0,00 46 PV of future dividends 0 0 47 Value of business opportunity 0 0 0,00 0