Valuation Model (DCF)

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This excel provides a DCF valuation template which is a valuation method where future cash flows are discounted to present value. The valuation approach is widely used within the investment banking and private equity industry.

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Valuation Model (DCF)

  1. 1. Project AC/DC - Valuation Summary($ in millions)Representative Multiples Range Latest Quarter (1) Implied TEV RangeMethodology Level Low -- High Cash Total Debt Low -- HighComparable Public CompaniesTEV / RevenueLTM $176.6 0.50x -- 0.60x 88.3 -- 106.0FYE + 1 222.8 0.50x -- 0.60x 111.4 -- 133.7TEV / EBITDALTM $15.8 9.0x -- 11.0x 142.1 -- 173.6FYE + 1 18.6 8.0x -- 10.0x 148.6 -- 185.7Price / EarningsLTM $6.8 24.0x -- 28.0x $17.0 $36.9 182.4 -- 209.5FYE + 1 8.1 18.0x -- 22.0x 17.0 36.9 165.7 -- 198.1Precedent Transactions (2)LTM Revenue $176.6 0.60x -- 0.70x 88.3 -- 103.0LTM EBITDA 15.8 9.5x -- 10.5x 125.0 -- 138.1Discounted Cash Flow (DCF) 164.3 -- 218.1Median $142.1 -- $173.6Mean $135.1 -- $162.9(1) AC/DC does not have preferred stock or minority interest.(2) Adjusted for a 20% acquisition premium.
  2. 2. Comparable Public Companies Analysis($ in millions)Comparable Companies - Consumer Electronics | RetailTHERE SHOULD BE NO HARDCODES ON THIS TABMultiples AnalysisSharePrice % of 52- Market Enterprise TEV / Revenue TEV / EBITDA Price / EarningsCompany Name Ticker 11/20/2006 week High Capitalization Value Cash Debt LTM FYE+1 LTM FYE+1 LTM FYE+1Best Buy Co., Inc. BBY $54.63 8.2% $27,262.9 $24,903.9 $2,668.0 $680.0 0.76x 0.70x 10.8x 9.7x 21.9x 19.0xCircuit City Stores, Inc. CC 23.55 25.3% 4,191.8 3,679.3 599.6 87.0 0.30x 0.28x 7.8x 7.3x 20.7x 18.0xRadioShack Corp. RSH 17.88 25.3% 2,428.5 2,762.1 276.4 610.0 0.55x 0.56x 10.2x 9.0x 32.9x 24.9xMedian 25.3% $4,191.8 $3,679.3 $599.6 $610.0 0.55x 0.56x 10.2x 9.0x 21.9x 19.0xMean 19.6% $11,294.4 $10,448.4 $1,181.3 $459.0 0.54x 0.52x 9.6x 8.7x 25.2x 20.6xMargins AnalysisRevenue Growth EBITDA Growth EPS Growth LTM CapEx % EBIT Margin EBITDA Margin Net MarginCompany Name FYE 05-06 FYE 06-07 FYE 05-06 FYE 06-07 FYE 05-06 FYE 06-07 of Revenue LTM FYE+1 LTM FYE+1 LTM FYE+1Best Buy Co., Inc. 12.4% 14.9% 10.6% 22.2% 22.1% 26.1% 2.2% 5.6% 6.0% 7.1% 7.3% 3.8% 4.1%Circuit City Stores, Inc. 10.8% 11.7% 36.9% 19.1% 68.6% 33.3% 1.7% 2.4% 2.6% 3.9% 3.9% 1.7% 2.0%RadioShack Corp. 5.0% -3.2% -28.2% -35.1% -20.0% -63.8% 2.2% 2.8% 3.6% 5.4% 6.2% 1.5% 2.0%Median 10.8% 11.7% 10.6% 19.1% 22.1% 26.1% 2.2% 2.8% 3.6% 5.4% 6.2% 1.7% 2.0%Mean 9.4% 7.8% 6.4% 2.0% 23.6% -1.5% 2.0% 3.6% 4.1% 5.5% 5.8% 2.3% 2.7%Source:Company filings, Yahoo! Finance, equity analyst research and press releases.
  3. 3. Effective Tax Rate 35% FYE - 1 2005 FY + 1 2007PStock Valuation Date 11/20/2006 FYE 2006 FY + 2 2008PTicker BBY CC RSHName Best Buy Co., Inc. Circuit City Stores, Inc. RadioShack Corp. Company Name Company Name Company Name Company Name Company Name Company Name Company Name Company Name Company NameCompany Descriptions Best Buy Co., Inc. isa specialty retailer ofconsumerelectronics, home-office products,entertainmentsoftware, appliancesand related services.Circuit City Stores,Inc. is a nationalretailer of brand-name consumerelectronics, personalcomputers (PCs)and entertainmentsoftware.RadioShackCorporation isprimarily engaged inthe retail sale ofconsumer electronicgoods and servicesthrough itsRadioShack storeInsert CompanyInformationInsert CompanyInformationInsert CompanyInformationInsert CompanyInformationInsert CompanyInformationInsert CompanyInformationInsert CompanyInformationInsert CompanyInformationInsert CompanyInformationStock Price as of (11/20/06) $54.63 $23.55 $17.88 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.0052 Wk High $59.50 $31.54 $23.95 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.0052 Wk Low $42.75 $20.21 $13.73 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00% Off High 8.2% 25.3% 25.3% #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!Enterprise Value $24,903.9 $3,679.3 $2,762.1 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0Equity Value $27,262.9 $4,191.8 $2,428.5 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0EV / Sales 0.81x 0.32x 0.54x NA NA NA NA NA NA NA NA NAEV / LTM Sales 0.76x 0.30x 0.55x NA NA NA NA NA NA NA NA NAEV / 2007P Sales 0.70x 0.28x 0.56x NA NA NA NA NA NA NA NA NAEV / 2008P Sales 0.59x 0.26x 0.54x NA NA NA NA NA NA NA NA NAEV / EBITDA 11.8x 8.7x 5.8x NA NA NA NA NA NA NA NA NAEV / LTM EBITDA 10.8x 7.8x 10.2x NA NA NA NA NA NA NA NA NAEV / 2007P EBITDA 9.7x 7.3x 9.0x NA NA NA NA NA NA NA NA NAEV / 2008P EBITDA 8.3x 5.8x 6.9x NA NA NA NA NA NA NA NA NAEV / EBIT 15.1x 14.3x 7.9x NA NA NA NA NA NA NA NA NAEV / LTM EBIT 13.8x 12.3x 19.6x NA NA NA NA NA NA NA NA NAEV / 2007P EBIT 11.8x 11.0x 15.5x NA NA NA NA NA NA NA NA NAEV / 2008P EBIT 9.8x 7.9x 10.2x NA NA NA NA NA NA NA NA NAGross Margin 25.0% 24.4% 46.7% #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!LTM Gross Margin 24.9% 24.3% 45.2% #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!EBITDA Margin 6.8% 3.6% 9.3% NA NA NA NA NA NA NA NA NALTM EBITDA Margin 7.1% 3.9% 5.4% NA NA NA NA NA NA NA NA NA2007P EBITDA Margin 7.3% 3.9% 6.2% NA NA NA NA NA NA NA NA NA2008P EBITDA Margin 7.1% 4.5% 7.8% NA NA NA NA NA NA NA NA NAEBIT Margin 5.3% 2.2% 6.9% NA NA NA NA NA NA NA NA NALTM EBIT Margin 5.6% 2.4% 2.8% NA NA NA NA NA NA NA NA NA2007P EBIT Margin 6.0% 2.6% 3.6% NA NA NA NA NA NA NA NA NA2008P EBIT Margin 6.0% 3.3% 5.3% NA NA NA NA NA NA NA NA NAOther MetricBasic Shares Out. 480.3 175.2 135.8Cash and Cash Equivalents $2,668.0 $599.6 $276.4Total Debt on Balance Sheet 680.0 87.0 610.0Less: Convertible Debt figured in FD Shares (402.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Preferred Equity 0.0 0.0 0.0Less: Preferred Equity figured into FD Shares 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Minority Interest 31.0 0.0 0.0Net Debt ($2,359.0) ($512.6) $333.6 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0Current Debt $496.0 $38.8 $265.3Total Current Liabilities 6,366.0 1,729.3 923.3Total Current Assets 7,887.0 2,844.5 1,488.1Net Working Capital ($651.0) $554.4 $553.7 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0Shareholders Equity $5,434.0 $1,915.3 $600.9Total Assets $12,407.0 $4,129.9 $1,984.5F.D. Shares Outstanding 499.0 178.0 135.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Equity Value $27,262.9 $4,191.8 $2,428.5 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0Net Debt (2,359.0) (512.6) 333.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Enterprise Value $24,903.9 $3,679.3 $2,762.1 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
  4. 4. 10-Q Current 8/26/2006 8/31/2006 9/30/2006Net Sales $14,562.0 $5,456.2 $3,319.4Gross Profit 3,667.0 1,316.2 1,568.0SG&A 3,000.0 1,292.7 1,509.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Reported EBIT 667.0 14.1 11.1Reported NI 464.0 16.4 (11.1)D&A 267.0 91.0 97.5Non-Recurring Oper. Exp. (Inc.) 0.0 9.5 47.3Final EBIT 667.0 23.6 58.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Final EBITDA 934.0 114.6 155.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Non-Recurring Non-Oper. Exp. (Inc.) 0.0 0.0 0.0Final Net Income 464.0 22.6 19.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0CapEx 299.0 102.9 62.410-Q Previous Year 8/26/2005 8/31/2005 9/30/2005 ############# ############# ############# ############# ############# ############# ############# ############# #############Net Sales $12,820.0 $4,784.9 $3,409.8Gross Profit 3,269.0 1,167.5 1,688.5SG&A 2,769.0 1,186.5 1,421.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Reported EBIT 500.0 (23.6) 267.5Reported NI 358.0 (8.0) 215.8D&A 222.0 80.4 91.6Non-Recurring Oper. Exp. (Inc.) 0.0 4.6 0.0Final EBIT 500.0 (19.0) 267.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Final EBITDA 722.0 61.4 359.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Non-Recurring Non-Oper. Exp. (Inc.) 0.0 0.0 0.0Final Net Income 358.0 (5.0) 215.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0CapEx 238.0 99.4 121.7Current 10-K 2/25/2006 2/28/2006 12/31/2005Net Sales $30,848.0 $11,597.7 $5,081.7Gross Profit 7,726.0 2,830.9 2,375.4SG&A 6,082.0 2,573.9 2,025.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Reported EBIT 1,644.0 220.4 349.9Reported NI 1,140.00 151.11 269.90D&A 460.0 163.8 123.8Non-Recurring Oper. Exp. (Inc.) 0.0 36.6Final EBIT 1,644.0 257.0 349.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Final EBITDA 2,104.0 420.8 473.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Non-Recurring Non-Oper. Exp. (Inc.) 0.0 0.0 0.0Final Net Income 1,140.0 174.9 269.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0CapEx 648.0 199.1 167.910-K Previous Year 2/25/2005 2/28/2005 12/31/2004 ############# ############# ############# ############# ############# ############# ############# ############# #############Net Sales $27,433.0 $10,469.5 $4,841.2Gross Profit 6,495.0 2,568.1 2,434.5SG&A 5,073.0 2,414.7 1,876.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Reported EBIT 1,422.0 92.8 558.3Reported NI 934.0 64.4 337.2D&A 481.0 153.9 101.4Non-Recurring Oper. Exp. (Inc.) 0.0 60.6 0.0Final EBIT 1,422.0 153.4 558.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Final EBITDA 1,903.0 307.3 659.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Non-Recurring Non-Oper. Exp. (Inc.) 0.0 0.0 0.0Final Net Income 934.0 103.7 337.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0CapEx 502.0 162.7 226.9LTM 8/26/2006 8/31/2006 9/30/2006 1/0/1900 1/0/1900 1/0/1900 1/0/1900 1/0/1900 1/0/1900 1/0/1900 1/0/1900 1/0/1900Net Sales $32,590.0 $12,268.9 $4,991.3 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0Gross Profit 8,124.0 2,979.6 2,254.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0SG&A 5,808.0 2,505.6 1,984.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Reported EBIT 1,811.0 258.0 93.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Reported NI 1,246.0 175.5 43.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0D&A 505.0 174.5 129.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Non-Recurring Oper. Exp. (Inc.) 0.0 41.5 47.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Final EBIT 1,811.0 299.5 140.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Final EBITDA 2,316.0 474.0 270.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Non-Recurring Non-Oper. Exp. (Inc.) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Final Net Income 1,246.0 202.5 73.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0CapEx 709.0 202.7 108.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0KaufmanBrothers_10250KaufmanBrothers_10250KaufmanBrothers_102502007P FYE 2006PSales $35,430.0 $12,951.0 $4,919.7EBIT 2,119.0 333.4 177.8EBITDA 2,571.0 501.2 307.2EPS $2.88 $1.31 $0.72CapEx 770.8 213.9 107.02008P FYE 2007PSales $42,426.0 $14,231.3 $5,076.2EBIT 2,554.0 467.2 269.5EBITDA 3,006.0 635.0 397.5EPS $3.30 $1.79 $1.08CapEx 923.0 235.1 110.4
  5. 5. Convertible DebtAmount Outstanding $402.00 $0.00 $0.00Conversion Price $46.00 $0.00 $0.00Number of Shares 8.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Amount of Debt to Subtract from Net Debt (402.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Amount of Shares to add to FD Shares 8.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Preferred Equity - ConvertibleAmount Outstanding $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00Conversion Price $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00Number of Common Shares 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Amount of Debt to Subtract from Net Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Amount of Shares to add to FD Shares 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Number of Options ExercisableA 19.60 0.37 2.44B 0.98 4.31C 1.75 1.84D 0.25 3.91E 0.50 4.93F 0.83G 0.12H 4.08I 1.10Weighted Average Strike PriceA $26.60 $5.69 $19.88B $7.40 $27.39C $8.32 $31.29D $10.06 $38.35E $12.27 $47.10F $14.43 $34.79G $15.66H $23.46I $27.20CalculationA 10.1 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0B 0.0 0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0C 0.0 1.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0D 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0E 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0F 0.0 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0G 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0H 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0I 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Sum 18.8 2.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0EPS 5 Yr GrowthFX CountryUSD / FX
  6. 6. Precedent Transactions - Consumer Electronics | Retail($ in millions)Announce Target LTM Transaction Implied TEV /Date Acquiror Target Target Description Revenue EBITDA Value Revenue EBITDA02/22/06 Best Buy Co. (1) Pacific Sales & Kitchen Privately owned retailer of high-endhome improvement products thatperates 14 showrooms in SouthernCalifornia$431.6 $58.6 $410.0 0.95x 7.00x04/17/05 GameStop Corp. (2) Electronics Boutique Leading global specialty retailer of videogame hardware, software and relatedaccessories.1,989.4 116.8 1,210.4 0.61x 10.4x02/15/05 Highfields CapitalManagementCircuit City Stores National retailer of brand-nameconsumer electronics, PCs andentertainment software.10,154.0 253.0 2,576.7 0.25x 10.2xMedian 0.61x 10.2xMean 0.60x 9.2xSource:(1) Best Buy Co. Press Release(2) GameStops 8K as of April 18, 2005, including Electronics Boutiques 10K as of January 29, 2005.(3) Circuit Citys 10Q as of November 30, 2004 and 10K as of February 29, 2004, including a Boston Business Journal article as of February 15, 2005.
  7. 7. Discounted Cash Flow (DCF) AnalysisBEST BUY CO. - EXAMPLE ONLYFiscal Year Ending ($MMs) 02/25/06 02/25/07 02/25/08 02/25/09 02/25/10 02/25/11Revenue $30,848 $35,430 $42,426 $48,790 $56,108 $64,525EBITDA $2,571 $3,006 $3,684 $4,236 $4,872EBIT $2,119 $2,554 $2,927 $3,367 $3,871Less: Estimated Taxes at 35% 742 894 1,025 1,178 1,355Tax-effected EBIT $1,377 $1,660 $1,903 $2,188 $2,516Plus: D&A 452 452 756 870 1,000Less: CapEx (771) (923) (921) (1,059) (1,218)Less: Changes in Working Capital (458) (700) (636) (732) (842)Free Cash Flow $600 $490 $1,102 $1,267 $1,457Assumed Tansaction Date of 11/20/06PV of FCF @ a Discount Rate of 11% $584 $429 $870 $901 $933Assumed EBITDA Exit Multiple of 9.0xPV of Terminal Value of $28,084TEV - Sensitivity Analysis Terminal EBITDA Multiple$31,801 7.0x 8.0x 9.0x 10.0x 11.0x9.0% 27,503 30,875 34,247 37,619 40,99210.0% 26,508 29,752 32,995 36,238 39,48211.0% 25,560 28,680 31,801 34,921 38,04212.0% 24,655 27,658 30,661 33,664 36,66713.0% 23,790 26,682 29,573 32,464 35,356Source:DiscountRateLinks to Comp Spread Tab
  8. 8. Discounted Cash Flow (DCF) Analysis - Project AC/DCTHERE SHOULD BE NO HARDCODES ON THIS TABFiscal Year Ending ($MMs) 02/25/06 02/25/07 02/25/08 02/25/09 02/25/10 02/25/11Revenue $185.7 $222.8 $267.4 $320.9 $385.1 $462.1EBITDA $22.3 $26.7 $32.1 $38.5 $46.2EBIT $20.1 $24.1 $28.9 $34.7 $41.6Less: Estimated Taxes at 0% 7.0 8.4 10.1 12.1 14.6Tax-effected EBIT $13.0 $15.6 $18.8 $22.5 $27.0Plus: D&A 2.2 2.7 3.2 3.9 4.6Less: CapEx (11.1) (13.4) (16.0) (19.3) (23.1)Less: Changes in Working Capital 1.1 (0.8) (1.6) (2.2) (2.8)Free Cash Flow $5.2 $4.2 $4.3 $4.9 $5.7Assumed Tansaction Date of 11/20/06PV of FCF @ a Discount Rate of 21% $4.9 $3.3 $2.8 $2.6 $2.5Assumed EBITDA Exit Multiple of 8.5xPV of Terminal Value of $174TEV - Sensitivity Analysis Terminal EBITDA Multiple$190 6.5x 7.5x 8.5x 9.5x 10.5x19.0% 159.7 181.7 203.7 225.7 247.720.0% 154.4 175.6 196.8 218.1 239.321.0% 149.3 169.8 190.3 210.8 231.322.0% 144.5 164.3 184.0 203.8 223.623.0% 139.8 158.9 178.0 197.1 216.2Source:DiscountRate
  9. 9. Weighted Average Cost of Capital (WACC) Analysis($ in millions)Comparable CompaniesMarket Debt to Preferred to Equity toPreferred Value of Total Debt to Total Total TotalDebt Stock Equity Capitalization Equity Capitalization Capitalization CapitalizationBest Buy Co., Inc. $680.0 $0.0 $27,262.9 $27,942.9 2.5% 2.4% 0.0% 97.6%Circuit City Stores, Inc. 87.0 0.0 4,191.8 4,278.9 2.1% 2.0% 0.0% 98.0%RadioShack Corp. 610.0 0.0 2,428.5 3,038.5 25.1% 20.1% 0.0% 79.9%Median $610.0 $0.0 $4,191.8 $4,278.9 2.5% 2.4% 0.0% 97.6%Mean $459.0 $0.0 $11,294.4 $11,753.4 #DIV/0! 8.2% 0.0% 91.8%Decile Adjusted Equity SizeLevered Unlevered Based Unlevered Risk Risk Cost of Cost of Cost ofBeta Beta Beta Beta Premium (1) Premium (1) Equity Debt Preferred WACCBest Buy Co., Inc. 1.05 1.03 0.91 1.60 6.3% -0.37% 10.8% 4.7% 0.0% 10.7%Circuit City Stores, Inc. 0.12 0.12 1.10 0.15 6.3% 0.75% 6.1% 5.4% 0.0% 6.1%RadioShack Corp. 1.09 0.94 1.13 1.17 6.3% 1.07% 12.5% 6.8% 0.0% 10.9%Median 1.05 0.94 1.10 1.17 10.8% 5.4% 0.0% 10.7%Mean 0.75 0.70 1.05 0.97 9.8% 5.6% 0.0% 9.2%Footnotes:Source: Company filings, equity analyst research and Bloomberg.Weighted Average Cost of Capital (WACC) = (Cost of Debt * (1-Tax Rate) * Debt to Enterprise Value) + (Cost of Equity * Equity to Enterprise Value)+ (Cost of Preferred * Preferred to Enterprise Value).Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium) + Size Risk Premium.Risk-free rate as of November 20, 2006.(1) Ibbotson Associates, Stocks Bonds Bills and Inflation 2005 Yearbook, pp. 138, 140, 169, and 179.
  10. 10. Weighted Average Cost of Capital (WACC) Analysis (cont.)Project AC/DCMarket Assumptions Beta Assumptions Capital Structure Assumptions20-Year Treasury Bond Yield 4.6% Company Specific Decile Beta 1.41 Preferred to Enterprise Value 0.0%Equity Risk Premium (1) 6.30% Selected Adjusted Unlevered Beta 1.17 Debt to Enterprise Value 2.4%Size Risk Premium (1) 6.41% Levered Beta 1.19 Equity to Enterprise Value 97.6%Company Specific Risk Premium 3.00% Cost of Debt 9.0%Tax Rate 35.0% Cost of Preferred 0.0%Cost of Equity 21.5%Concluded Weighted Average Cost of Capital 21.1%Footnotes:Source: Company filings, equity analyst research and Bloomberg.Weighted Average Cost of Capital (WACC) = (Cost of Debt * (1-Tax Rate) * Debt to Enterprise Value) + (Cost of Equity * Equity to Enterprise Value)+ (Cost of Preferred * Preferred to Enterprise Value).Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium) + Size Risk Premium.Risk-free rate as of November 20, 2006.(1) Ibbotson Associates, Stocks Bonds Bills and Inflation 2005 Yearbook, pp. 138, 140, 169, and 179.

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