Simple Dividend Discount Model

All figures in USD millions unless stated 2022A 2023A 2024A 2025F 2026F 2027F 2028F 2029F Term

Cost of Equity 10.00%

Terminal Growth Rate of D 3.00%
Net Debt 50

Net Income 36 40 44 53 46 41 43 50
Net Income Growth NA 11.1% 10.6% 19.8% (13.5%) (11.6%) 5.1% 16.7%
Common Dividends 15 16 18
Dividend Payout Ratio 41.7% 40.0% 40.7% 45.0% 45.0% 48.0% 48.0% 50.0%

Dividends
Terminal Value
Total Dividends

Discounting Period
Present Value of Common Dividends

EQUITY VALUE 1
Intrinsic Value of Equity
Fully Diluted Shares Outs 25
Intrinsic Value of Equity per Share
Current Share Price 15.00

Assumes end-of-period discounting. ⁽¹⁾

CETI CALCULATION

BALANCE SHEET

All figures in USD millions unless stated Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

ASSETS
Cash 527 558 597 639 703 710 781 789
Loans 3,172 3,394 3,461 3,773 4,150 4,482 4,931 5,424
Goodwill 100 100 100 100 100 100 100 100
Property, Plant & Equipment 75 75 75 75 75 75 75 75
Total Assets 3,874 4,127 4,233 4,587 5,028 5,367 5,887 6,388

LIABILITIES
Customer Deposits 3,000 3,090 3,213 3,406 3,644 3,827 3,865 4,019
Long-Term Debt 600 648 686 721 757 795 874 918
Total Liabilities 3,600 3,738 3,899 4,127 4,401 4,622 4,739 4,937

EQUITY
Common Stock and Additional Paid-In Capital 74 169 112 225 371 463 855 1,134
Retained Earnings 200 220 222 235 256 282 293 317
Total Shareholder's Equity 274 389 334 460 627 745 1,148 1,451

Check – – – – – – – –

CET1

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

Common Equity Tier 1

Risk-Weighted Assets:
Cash
Loans
Weighting:
Cash – – – – – – – –
Loans 150% 150% 150% 150% 150% 150% 150% 150%

Total Risk-Weighted Assets

CET1 Ratio
Dividends with Regulatory Capital

All figures in USD millions unless stated 2022A 2023A 2024A 2025F 2026F 2027F 2028F 2029F Term

Net Income 2,199 2,448 2,588 2,597 2,707 2,885 3,147 3,309 3,441
Net Income Growth Rate NA 11.3% 5.7% 0.3% 4.2% 6.6% 9.1% 5.1% 4.0%
Common Dividends 990 1,346 1,551
Dividend Growth Rate NA 36.0% 15.2% (100.0%) NA NA NA NA NA
Targeted Dividend Payout Ratio 45.0% 55.0% 59.9% 65.0% 65.0% 65.0% 65.0% 65.0% 65.0%
Actual Dividend Payout Ratio – – – – – –

COMMON EQUITY
Beginning Balance
Net Income to Common
Common Dividends
Ending Balance 2,740

Less: Goodwill (100) (100) (100) (100) (100) (100) (100) (100) (100)
Common Equity Tier 1 (CET1) Capital

Targeted CET1 Ratio 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5%
Targeted CET1 NA NA NA
Actual CET1 Ratio

Risk-Weighted Assets (RWA) 31,000 35,400 41,870 54,410 72,658 95,156 124,753 140,195
RWA Growth NA 14.2% 18.3% 29.9% 33.5% 31.0% 31.1% 12.4% 4.0%
Residual Income

All figures in USD millions unless stated 2022A 2023A 2024A 2025F 2026F 2027F 2028F 2029F Term

Net Income 35 37 38 39 40 41 43 44 46
Net Income Growth Rate NA 5.7% 2.7% 2.6% 2.6% 2.5% 4.9% 2.3% 5.0%
Common Dividends 11 15 19 20 22 23 24 26 27
Dividend Growth Rate NA 36.4% 26.7% 5.3% 10.0% 4.5% 4.3% 8.3% 3.8%
Actual Dividend Payout Ratio 31.4% 40.5% 50.0% 51.3% 55.0% 56.1% 55.8% 59.1% 58.4%

COMMON EQUITY
Beginning Balance
Net Income to Common
Common Dividends
Ending Balance 350

Less: Goodwill (100) (100) (100) (100) (100) (100) (100) (100) (100)
Common Equity Tier 1 (CET1) Capital

Return on Equity (Beginning) NA

Cost of Equity NA NA NA 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
Required Return on Equity NA NA NA
Residual Income NA NA NA
Alternative Calculation NA NA NA

Targeted CET1 Ratio 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Targeted CET1 NA NA NA 271 328 269 319 335 352
Actual CET1 Ratio – – – – – – – – –

Risk-Weighted Assets (RWA) 3,571 3,400 4,157 3,875 4,686 3,844 4,563 4,788 5,027
RWA Growth NA (4.8%) 22.3% (6.8%) 20.9% (18.0%) 18.7% 4.9% 5.0%
Residual Income

All figures in USD millions unless stated 2025F 2026F 2027F 2028F 2029F Term

2024A Ending Common Equity Balan 351

Residual Income 4 3 2 3 2 3

Residual Income Model: Perpetuity Approach

All figures in USD millions unless stated Valuation Discrete Forecast Term
(YY-MM-DD)(YY-MM-DD)
(YY-MM-DD)
(YY-MM-DD)(YY-MM-DD)
(YY-MM-DD)
(YY-MM-DD)
Cost of Equity 10.0% Fiscal Year End 24/12/31 25/12/31 26/12/31 27/12/31 28/12/31 29/12/31 30/12/31
Terminal Growth Rate of Residual 5.0% Income Timing 24/12/31 25/06/30 26/06/30 27/06/30 28/06/30 29/06/30 30/06/30

Residual Income –

UNADJUSTED RESIDUAL INCOME

Discrete Forecast –
Terminal Value – – – – –
Total Residual Inccome

ADJUSTED RESIDUAL INCOME

Partial Period Adjustment –
Discrete Forecast –
Terminal Value –
Total Residual Income –

DISCOUNTED RESIDUAL INCOME

Years for Discounting –
Discrete Forecast –
Terminal Value –
Total Residual Income –

PV OF RESIDUAL INCOME EQUITY VALUE

Manual Method – PV of Discrete
XNPV Function 1 – PV of Terminal
2024A Book Value
Equity Value
Comparable Company Metrics

All figures in USD millions unless stated

Tangible
Share Shares Market Book Value Net Income P / TBV P/E ROTCE
Peer Banks Priceutstand. Cap 2024A 2025F 2024A 2025F 2024A 2025F 2024A 2025F 2024A 2025F
$ mm x x x x

Bank A $12.50 12.155 150.00 154.50 11.85 12.68 7.9% 8.2%

Bank B $35.00 12.624 341.92 355.60 35.00 36.75 10.2% 10.3%
Bank C $47.99 15.122 515.10 540.86 52.14 54.75 10.1% 10.1%
Bank D $31.27 18.000 407.32 427.69 51.50 54.33 12.6% 12.7%
Bank E $23.72 23.555 358.61 380.13 47.92 49.84 13.4% 13.1%

Average
Median
Maximum
Minimum

Target Bank Value at Median Multiples

2024A P/TBV 22.500 283.25
2025F P/TBV 22.500 301.36
2024A P/E 22.500 35.75
2025F P/E 22.500 41.00
Regression

All figures in USD millions unless stated

Tangible
Share Shares Market Book Value P / TBV ROTCE
Peer Banks PriceOutstand. Cap 2024A 2025F 2024A 2025F 2024A 2025F
$ mm x x

Bank A 1.0x 1.0x 7.9% 8.2%

Bank B 1.3x 1.2x 10.2% 10.3%
Bank C 1.4x 1.3x 10.1% 10.1%
Bank D 1.4x 1.3x 12.6% 12.7%
Bank E 1.6x 1.5x 13.4% 13.1%

Beta
Intercept
RSQ

Target Bank Value Using Regression Implied P / TBV

2024A P/TBV 22.500 283.25 12.3%
2025F P/TBV 22.500 301.36 13.0%
Cashflow and Discount rate consistency

Levered free Cashflow (USD)

Risk free rate 2.0%

Cost of Equity 4.5%
Cost of Debt 5.4%
WACC 5.1%

Which of the above rates would you use to discount Levered Free Cash Flow, what would that output

a b
Appropriate discount rate Cost of Equity WACC
Name of Output Equity Value Enterprise Value
Value of output 495,336 487,624
 2021A 2022F 2023F 2024F

87,408 79,577 83,351 83,377

ree Cash Flow, what would that output be called and its value.

c d
Cost of Equity Risk free rate
Equity Value Equity Value
459,064 519,703
2025F 2026F 2027F

60,148 97,328 70,126

Risk free rate

Which of the following is appropriate to use for a risk free rate

a Treasury bill
b Equity Market return
c Equity Market Risk Premium
d 5 Year Treasury bond
e 10 Year Treasury bond
f WACC
Growth rate

Given the following value drivers determine this company's growth rate

Dividend Payout Ratio 40.0%

ROIC 15.0%
Cost of Capital 9.0%

a 6.0%
b 5.4%
c 3.6%
d 9.0%
 Income Statement

All figures in USD thousands unless stated 2020A 2021A 2022A 2023F 2024F 2025F 2026F 2027F

Revenue 50,589 51,648 52,932 59,534 60,164 59,236 51,267 53,011

COGS (24,544) (25,104) (25,776) (25,661) (25,929) (28,422) (27,028) (28,608)
Gross Profit 26,045 26,544 27,156 33,873 34,235 30,814 24,239 24,403

SG&A (5,877) (6,006) (6,660) (6,151) (6,514) (6,259) (6,119) (6,464)

Other (1,764) (1,931) (2,110) (2,271) (2,296) (2,120) (2,127) (2,316)
EBITDA 18,404 18,607 18,386 25,451 25,425 22,435 15,993 15,623

Depreciation (2,960) (3,196) (4,363) (4,480) (4,963) (4,686) (4,597) (5,253)

EBIT 15,444 15,411 14,023 20,971 20,462 17,749 11,396 10,370

Interest Expense (1,688) (2,200) (2,124) (2,118) (1,828) (1,505) (1,275) (2,016)
Interest Income 200 180 276 223 255 165 163 275
EBT 13,956 13,391 12,175 19,076 18,889 16,409 10,284 8,629

Provision for Taxes (3,489) (3,080) (2,679) (4,197) (4,156) (3,610) (2,262) (1,898)

Net Income 10,467 10,311 9,497 14,879 14,733 12,799 8,022 6,731

Introduction to Business Valuation Page 13 of 28

 Cash Flow Statement

Introduction to Business Valuation Page 14 of 28

 Balance Sheet

Introduction to Business Valuation Page 15 of 28

 Intrinsic Valuation - Financial Statement Extracts

All figures in USD thousands unless stated

2022A 2023F 2024F 2025F 2026F 2027F
Excerpts Provided from Financial Statement
Net Income 9,497 14,879 14,733 12,799 8,022 6,731
Depreciation 4,363 4,480 4,963 4,686 4,597 5,253
Interest Expense, net 1,848 1,895 1,573 1,340 1,112 1,741
Tax Rate 22% 22% 22% 22% 22% 22%
After-tax Interest Expense (Int Exp * (1-Tax)) 1,441 1,478 1,227 1,045 867 1,358
EBIT 14,023 20,971 20,462 17,749 11,396 10,370
Unlevered Taxes (3,085) (4,614) (4,502) (3,905) (2,507) (2,281)
EBITDA 18,386 25,451 25,425 22,435 15,993 15,623
Capital Expenditures (2,000) (6,900) (7,050) (7,275) (7,200) (7,688)
Change in working capital (263) (535) (118) (120) (92) (62)
Long term debt 20,000
Cash 5,857

Introduction to Business Valuation Page 16 of 28

 Intrinsic Valuation - Determining Unlevered Free Cashflow (UFCF)

All figures in USD thousands unless stated

2023F 2024F 2025F 2026F 2027F
UFCF Using EBIT
EBIT 20,971 20,462 17,749 11,396 10,370
Less: Unlevered Taxes (4,614) (4,502) (3,905) (2,507) (2,281)
Net Operating Profit After Taxes (NOPAT) 16,357 15,960 13,844 8,889 8,089
Depreciation 4,480 4,963 4,686 4,597 5,253
Capex Investment (6,900) (7,050) (7,275) (7,200) (7,688)
Change in working capital (535) (118) (120) (92) (62)
Unlevered Free Cash Flow (UFCF) using EBIT 13,402 13,756 11,135 6,194 5,592

UFCF Using Net Income

Net Income 14,879 14,733 12,799 8,022 6,731
Depreciation 4,480 4,963 4,686 4,597 5,253
After-tax Interest Expense (Int Exp * (1-Tax)) 1,478 1,227 1,045 867 1,358
Capex Investment (6,900) (7,050) (7,275) (7,200) (7,688)
Change in working capital (535) (118) (120) (92) (62)
Unlevered Free Cash Flow (UFCF) using Net Income 13,402 13,756 11,135 6,194 5,592

UFCF Using EBITDA

EBITDA 25,451 25,425 22,435 15,993 15,623
Unlevered Taxes (4,614) (4,502) (3,905) (2,507) (2,281)
Capex Investment (6,900) (7,050) (7,275) (7,200) (7,688)
Change in working capital (535) (118) (120) (92) (62)
Unlevered Free Cash Flow (UFCF) using EBITDA 13,402 13,756 11,135 6,194 5,592

Introduction to Business Valuation Page 17 of 28

 Intrinsic Valuation - Calculating WACC

Using the Capital Asset Pricing Model (CAPM) to calculate the Cost of Equity

Risk free rate 3.0%

Beta 1.5
Market Risk Premium 6.0%
Cost of Equity 12.0%

Calculation of Weighted Average Cost of Capital (WACC)

Target Debt Weight 10.0%

Target Equity Weight 90.0%
Cost of Debt 6.0%
Tax Rate 21.0%
After-tax Cost of Debt 4.7%
Cost of Equity 12.0%
WACC 11.3%

Introduction to Business Valuation Page 18 of 28

 Intrinsic Valuation - Determining Terminal Value using a Perpetual Growth Rate

WACC 11.3%
Terminal Growth Rate 2.0%

All figures in USD thousands unless stated

2023F 2024F 2025F 2026F 2027F
Unlevered Free Cash Flow (UFCF) 13,402 13,756 11,135 6,194 5,592
Perpetuity UFCF t+1 5,704
Terminal Value using a Perpetual Growth Rate 61,505

Introduction to Business Valuation Page 19 of 28

 Intrinsic Valuation - Determining Terminal Value using an EBITDA Multiple

WACC 11.3%
Terminal Multiple 7.2x

All figures in USD thousands unless stated

2023F 2024F 2025F 2026F 2027F
Unlevered Free Cash Flow (UFCF) 13,402 13,756 11,135 6,194 5,592
EBITDA 15,623
Terminal Value using EBITDA Multiple 113,065

Introduction to Business Valuation Page 20 of 28

 Intrinsic Valuation - Discounting Unlevered Free CashFlows (UFCF) and Terminal Values

All figures in USD thousands unless stated

2022A 2023F 2024F 2025F 2026F 2027F
Terminal Value using Perpetual Growth Rate 61,505
Terminal Value using EBITDA Multiple 113,065
Average 87,285

Unlevered Free Cash Flow (UFCF) 13,402 13,756 11,135 6,194 5,592
Terminal Value 87,285
Total Cash Flows 13,402 13,756 11,135 6,194 92,878

WACC 11.3%

Discounting Period 1 2 3 4 5
Present Value of Cash Flows 12,044 11,110 8,082 4,040 54,443

EQUITY VALUE 1 IMPLIED PERPETUITY GROWTH AND TERMINAL MULTIPLE

Enterprise Value 89,719 2027F UFCF 5,592
Less: Net Debt (14,143) Terminal Value using EBITDA Multiple 113,065
Equity Value 75,576 Implied Perpetuity Growth Rate 1 6.0%
Implied Perpetuity Growth Rate 2
5.8%
EQUITY VALUE PER SHARE
Equity Value 75,576 2027F EBITDA 15,623
Shares Outstanding (FD 000) 17,100 Terminal Value using a Perpetual Growth Ra 61,505
Equity Value ($/sh) 4.42 Implied Terminal Multiple 3.9x
Current Price ($/sh) 7.25
Upside/(Downside) (39%) Assumes end-of-period discounting. ⁽¹⁾
Assumes mid-year discounting. ⁽²⁾

Introduction to Business Valuation Page 21 of 28

 Intrinsic Valuation - Using NPV and XNPV

All figures in USD thousands unless stated Valuation Discrete Forecast Terminal
(YY-MM-DD)(YY-MM-DD)
(YY-MM-DD)
(YY-MM-DD)(YY-MM-DD)
(YY-MM-DD)
(YY-MM-DD)
WACC 11.3% Fiscal Year End 22/12/31 23/12/31 24/12/31 25/12/31 26/12/31 27/12/31 27/12/31
Cash Flow Timing 22/12/31 23/06/30 24/06/30 25/06/30 26/06/30 27/06/30 27/06/30

2022A 2023F 2024F 2025F 2026F 2027F

Unlevered Free Cash Flow (UFCF) 13,402 13,756 11,135 6,194 5,592
Average Terminal Value 87,285
Total Cash Flows – 13,402 13,756 11,135 6,194 92,878

Manual End-of-Period Discounting Convention

Discounting Period 1 2 3 4 5
Present Value of Cash Flows – 12,044 11,106 8,080 4,039 54,427
Enterprise Value 89,696
Equity Value ($/sh) 4.42

Manual Mid-Year Discounting Convention

Discounting Period 0.5 1.5 2.5 3.5 4.5
Present Value of Cash Flows – 12,711 11,721 8,527 4,263 57,438
Enterprise Value 94,659
Equity Value ($/sh) 4.71

Using the NPV function (End-of-Period Discounting) 1

Enterprise Value 89,719
Equity Value ($/sh) 4.42

Using the XNPV function (End-of-Period Discounting) 2

Enterprise Value 89,696
Equity Value ($/sh) 4.42

Using the XNPV function (Mid-Year Discounting)

Enterprise Value 94,659
Equity Value ($/sh) 4.71

The NPV function assumes cash flows are evenly spaced;

you do not typically include the first cash flow (if there is one), as NPV will discount that cash flow as well.⁽¹⁾
The XNPV function is more accurate as it takes into account precise dates;
it will not discount the first cash flow if that cash flow is negative.⁽²⁾

Introduction to Business Valuation Page 22 of 28

 Intrinsic Valuation - Using IRR and XIRR

All figures in USD thousands unless stated Valuation Discrete Forecast Terminal
(YY-MM-DD)(YY-MM-DD)
(YY-MM-DD)
(YY-MM-DD)(YY-MM-DD)
(YY-MM-DD)
(YY-MM-DD)
WACC 11.3% Fiscal Year End 22/12/31 23/12/31 24/12/31 25/12/31 26/12/31 27/12/31 27/12/31
Cash Flow Timing 22/12/31 23/06/30 24/06/30 25/06/30 26/06/30 27/06/30 27/06/30

2022A 2023F 2024F 2025F 2026F 2027F

Unlevered Free Cash Flow (UFCF) 13,402 13,756 11,135 6,194 5,592
Average Terminal Value 87,285
Total Cash Flows (20,000) 13,402 13,756 11,135 6,194 92,878

Using the IRR function 1

Internal Rate of Return (IRR) 76.8%

Using the XIRR function (End-of-Period Discounting)

Internal Rate of Return (IRR) 76.8%

Using the XIRR function (Mid-Year Discounting)

Internal Rate of Return (IRR) 105.7%
Both IRR and XIRR require an initial cash outflow to calculate;
The XIRR function is more accurate as it takes into account precise dates.⁽¹⁾

Introduction to Business Valuation Page 23 of 28

 Data Table

Equity Value per Share

Perpetuity Growth Rate

4.42 – 1.0% 2.0% 3.0% 4.0%
13.3%
12.3%

WACC
11.3%
10.3%
9.3%

Equity Value per Share

Terminal Multiple
4.42 5.2x 6.2x 7.2x 8.2x 9.2x
13.3%
12.3%
WACC

11.3%
10.3%
9.3%

Introduction to Business Valuation Page 24 of 28

Relative Valuation Multiples

Peer Companies EV / EBITDA Net Debt Enterprise Value

West Company 13.3x 2,150 14,435
East Company 6.5x 50 14,162
North Company 10.0x 1,283 15,269
South Company 13.9x 2,866 15,823

Average 10.9x
Median 11.6x
Maximum 13.9x
Minimum 6.5x

What is the average, median, maximum and minimum Enterprise to Ebitda multiple of the above li
 EBITDA Net Income
1,086 586
2,169 809
1,530 651
1,142 484

o Ebitda multiple of the above listed comparables?

Relative Valuation Multiples

Peer Companies P/E Net Debt Market Cap.

West Company 26.2x 2,150 15,375
East Company 17.6x 50 14,229
North Company 26.9x 1,283 17,528
South Company 35.3x 2,866 17,089

Average 26.5x
Median 26.6x
Maximum 35.3x
Minimum 17.6x

What is the average, median, maximum and minimum Enterprise to Ebitda multiple of the above li
 EBITDA Net Income
1,086 586
2,169 809
1,530 651
1,142 484

o Ebitda multiple of the above listed comparables?