ITE Valuation – Excel Valuations Introduction Recall William's assumptions: “With the right financing and the right acquisitions, under ideal circumstances, ITE could achieve $6 million in sales in five years, and $14 million in 10 years, with a target 20% growth rate, ”William said. He realized this was an ambitious goal, given that the industry was only growing at 2.4%. He estimated that plant, property and equipment would average 15-20% of sales to support this level of growth. William said that while some of the income statement and balance sheet accounts varied in recent years, he thought it was a fair approximation to use averages of the accounts as a percent of sales over the past three years. Overall, he thought that the past statements were reflective of the future. Growth would be much more modest after 10 years, with sales growing at the rate of inflation and low maintenance capital expenditure equaling low depreciation expenses. William had found statistics about small companies that were in the same line of business as ITE. These are compiled in ITE Case Exhibits (available in the course space). See Exhibit 1 for comparable transaction information and Exhibit 2 for selected ITE financial information. Exhibit 3 contains information about ITE competitors and Exhibit 4 has financial markets information. Now William had to find a way to set an asking price for ITE so he could decide whether to put the firm on the market, get himself out from under the frustrating burden of partnership, or buy out John’s share of the firm. ________________________________________

Deliverable Instructions Use the ITE Case Exhibits excel file above to calculate the following. Add tabs to the spreadsheet for each of the following tasks. • Value ITE using discounted cash flow. a. Calculate WACC. Find cost of equity using beta information in Exhibit 3 and market data in Exhibit 4. b. Create forecasted free cash flows for ITE using information in Exhibit 2 c. Find the value of ITE using free cash flow discounted by WACC, and using a growing perpetuity to calculate terminal value. • Value ITE using comparable transactions in Exhibit 1.