Discuss the key variables you would use to test the sensitivity of the DCF analysis in Exhibit 11. You can use high to low range within +10% to -10% of any variable's value. Pick two variables from the sensitivity analysis and perform a scenario analysis on them (I.e., vary them simultaneously and see the impact on value).  

For the base year, use Excess Cash = $1,512mn, Debt = $1,432mn, EBIT =$1,756mn. Use the Post-IPO number of shares for valuing the stock =2,138,085,037.

 

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DCF Assumptions: Revenue growth rate EBIT (Operating) margin Tax rate Increase in CAPEX + WC as % of sales Cost of capital Free cash flow to firm ($ millions): Revenues EBIT EBIT (1-tax) Increase in CAPEX + WC FCFF Terminal value Present value: Cumulative discount factor PV of FCFF and TV Value of firm - Debt + Excess Cash Value of equity - Cost of equity options (after tax) Value of common equity Number of shares (millions) Estimated value /share 2011 Base year Price talk Price as % of value 45.7% 40.0% 3,711 1,695 1,017 72,026.7 1,088.9 1,512.0 72,449.8 3,088.5 69,361.3 2,138.1 $ 32.44 $ 38.00 117% 2012E 1 2013E 2 40.0% 40.0% 44.6% 43.5% 40.0% 67% 40.0% 67% 11.1% 11.1% 5,195 7,274 2,318 3,167 1,391 1,900 995 1,392 396 508 0.9002 0.8104 356 412 2014E 3 40.0% 42.5% 40.0% 67% 11.1% 10, 183 4,325 2,595 1,949 646 0.7296 471 WACC Market values Weights in WACC Cost of Component 2015E 4 40.0% 41.4% 40.0% 67% 11.1% 2016E 5 0.6568 534 2017E 6 40.0% 32.4% 40.3% 39.3% 40.0% 39.0% 67% 67% 11.1% 10.5% 14,256 19,959 26,425 8,051 10,377 4,830 6,330 5,903 3,542 2,729 813 3,821 4,333 1,010 1,997 0.5912 0.5352 597 1,069 2018E 7 24.8% 17.2% 9.6% 38.2% 37.1% 36.1% 38.0% 37.0% 36.0% 67% 67% 67% 9.8% 9.2% 8.6% 32,979 38,651 12,599 14,353 15,279 7,811 9,042 9,778 2,486 4,391 3,800 3,420 5,242 7,292 0.4872 1,667 2019E 2020E 8 9 Equity Debt Preferred Capital $81,247.2 $1,088.9 $1,088.9 $ - 98.7% 1.3% $82,336.1 0.0% 11.2% 2.4% 7.1% 100.0% 11.1% 2021E 10 2.0% 35.0% 35.0% 67% 8.0% 42,362 43,209 15,123 9,830 568 9,262 0.4461 0.4107 0.3802 2,338 2,995 3,522 Terminal year 2.0% 35.0% 35.0% 100% 8.0% 44,073 15,426 10,027 864 9,162 152,707 0.3802 58,066 DCF Assumptions: Revenue growth rate EBIT (Operating) margin Tax rate Increase in CAPEX + WC as % of sales Cost of capital Free cash flow to firm ($ millions): Revenues EBIT EBIT (1-tax) Increase in CAPEX + WC FCFF Terminal value Present value: Cumulative discount factor PV of FCFF and TV Value of firm - Debt + Excess Cash Value of equity - Cost of equity options (after tax) Value of common equity Number of shares (millions) Estimated value /share 2011 Base year Price talk Price as % of value 45.7% 40.0% 3,711 1,695 1,017 72,026.7 1,088.9 1,512.0 72,449.8 3,088.5 69,361.3 2,138.1 $ 32.44 $ 38.00 117% 2012E 1 2013E 2 40.0% 40.0% 44.6% 43.5% 40.0% 67% 40.0% 67% 11.1% 11.1% 5,195 7,274 2,318 3,167 1,391 1,900 995 1,392 396 508 0.9002 0.8104 356 412 2014E 3 40.0% 42.5% 40.0% 67% 11.1% 10, 183 4,325 2,595 1,949 646 0.7296 471 WACC Market values Weights in WACC Cost of Component 2015E 4 40.0% 41.4% 40.0% 67% 11.1% 2016E 5 0.6568 534 2017E 6 40.0% 32.4% 40.3% 39.3% 40.0% 39.0% 67% 67% 11.1% 10.5% 14,256 19,959 26,425 8,051 10,377 4,830 6,330 5,903 3,542 2,729 813 3,821 4,333 1,010 1,997 0.5912 0.5352 597 1,069 2018E 7 24.8% 17.2% 9.6% 38.2% 37.1% 36.1% 38.0% 37.0% 36.0% 67% 67% 67% 9.8% 9.2% 8.6% 32,979 38,651 12,599 14,353 15,279 7,811 9,042 9,778 2,486 4,391 3,800 3,420 5,242 7,292 0.4872 1,667 2019E 2020E 8 9 Equity Debt Preferred Capital $81,247.2 $1,088.9 $1,088.9 $ - 98.7% 1.3% $82,336.1 0.0% 11.2% 2.4% 7.1% 100.0% 11.1% 2021E 10 2.0% 35.0% 35.0% 67% 8.0% 42,362 43,209 15,123 9,830 568 9,262 0.4461 0.4107 0.3802 2,338 2,995 3,522 Terminal year 2.0% 35.0% 35.0% 100% 8.0% 44,073 15,426 10,027 864 9,162 152,707 0.3802 58,066

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To perform a sensitivity analysis on the DCF analysis in Exhibit 11 we need to identify key variable... View the full answer