1. Conduct a Sensitivity Analysis for Google

Vary the following inputs to the two-tier valuation model and indicate the new valuation amount and the percentage change from the above "base" case.

• Free Cash Flows
• Increase the FCF by 10%
• Decrease the FCF by 10%
• Terminal Growth Rate
• Increase the Terminal Growth Rate from 2.5% to 3.5%
• Decrease the Terminal Growth Rate from 2.5% to 1.5%
• WACC
• Add 2% to the WACC (that is if the WACC is 7.5% make it 9.5%)
• Subtract 2% from the WACC (that is if the WACC is 7.5% make it 5.5%)

1. Observations

• State your observations from the sensitivity analysis. How important (conceptually) is the terminal growth rate to overall value? How important is the WACC to overall value?

FCF $29,129,252

WACC 12.00%

Year FCF PV @12% Present Value

1 $31,380,480 0.8929 $28,018,286.00

2 $33,890,918 0.7972 $27,017,633.00

3 $36,602,192 0.7118 $26,052,717.00 Terminal Value

4 $394,918,387.00 0.7118 $281,095,108.00 Total firm Value $362,183,744.00

Market cap $958,950,000,000

Firm Value $362,183,744.00

Total debt (mrq) $16,800,000,000

Intrinsic value = Firm Value - debt ($16,437,816,256.00)