1) Cost of Capital (using Dividend Discount Model) -----> This is the discount rate

2) Projected Operating & Stockholder Information

EXHIBIT 4 Condensed Operating and Stockholder Information for
Nicholson File Company, 1967-1971

OPERATIONS ($ MILLIONS)
Net sales
Cost of goods sold
Selling, general & admin.
Depreciation expense
Interest expense
Other deductions
INCOME BEFORE TAXES
Taxes (a)
NET INCOME

1967
48.5
32.6
10.7
2
0.4
0.27
2.53
0.6
1.93

1968
49.1
33.1
11.1
2.3
0.7
0.05
1.85
0.84
1.01

1969
53.7
35.9
11.5
2.4
0.78
0.15
2.97
1.31
1.66

1970
54.8
37.2
11.9
2.3
0.8
0.18
2.42
0.88
1.54

1971
55.3
37.9
12.3
2.1
0.8
0.18
2.02
0.67
1.35

1972
58.62
38.10
11.14
2.23
0.00
0.18
6.97
2.31
4.66

1973
62.14
40.39
11.81
2.36
0.00
0.18
7.40
2.46
4.95

PERCENTAGE OF SALES
Cost of goods sold
Selling, general & admin.
Income before taxes

1967
67%
22%
5%

1968
67%
23%
4%

1969
67%
21%
6%

1970
68%
22%
4%

1971
69%
22%
4%

1972
65%
19%

1973
65%
19%

STOCKHOLDER INFORMATION
Earnings per share
Dividends per share
Book value per share

3.19
1.6
45.66

1.65
1.6
48.03

2.88
1.6
49.31

2.64
1.6
50.2

2.32
1.6
51.25

33
46

35
48

29
41

25
33

23
32

10.34
14.42

21.21
30.00

10.07
14.24

9.47
12.50

9.91
13.79

1972

1973

Market price - low

Market price - high
P/E ratio - low
P/E ratio - high

3) Valuation of Nicholson Company

Add :Less :-

EBIT(1-T)
Depn.
NWC
Capex
FCF

Continuity Value
Discount Factor
Discounted FCF
P.V. of the firm
Value of equity
Price per Share

4.66
2.23
1.44
0.96
4.49

4.95
2.36
1.53
1.02
4.76

0.92
4.14

0.85
4.06

assumptions
sales
dep
tax
PE

6%

13.13%
33.17%
KE
5.27% (44 IS MPS) KD=R(1-T)
Cost of

gdp growth
1974
65.86
42.81
12.51
2.50
0.00
0.18
7.86
2.61
5.25

1975
69.81
45.38
13.26
2.65
0.00
0.18
8.34
2.77
5.57

1976
74.00
48.10
14.06
2.81
0.00
0.18
8.85
2.94
5.91

1974
65%
19%

1975
65%
19%

1976
65%
19%

1974

1975

1976

2%

in as is basis price will be com

(grow by 6%)
same interest as no more loans
constant

EBIT(1-T)

5.25
2.50
1.62
1.08
5.06

5.57
2.65
1.72
1.14
5.37

5.91
2.81
1.82
1.21 (assumed to be zero)
5.70

0.79
3.97

0.73
3.89

0.67
3.81

91.51
61.28878 pv of 91.51(continuity value
19.88
81.17
69.17
118.4396

DDM
KE=D1/P0
9.85% WE
4% WD
8.35%

31
12

EXHIBIT 5 Balance Sheet of Nicholson File Company as of

December 31, 1971 ($ millions)

ASSETS
Cash
Accounts receivable
Inventories
Other
TOTAL CURRENT ASSETS
Investment in subsidiaries
Net plant and equipment
TOTAL ASSETS

Dec-71
1
8
18
1
28
3
16
47

Dec-72

Dec-73

Dec-74

Dec-75

16.96

17.98

19.06

20.20

LIABILITIES & NET WORTH

Dec-71
Accounts payable
2
Other
2
TOTAL CURRENT LIABILITIES
4
Long-term debt
12
Common stock
31
TOTAL LIABILITIES & NET WORTH
47

Dec-72

Dec-73

Dec-74

Dec-75

Dec-72

Dec-73

Dec-74

Dec-75

Dec-76

25.44

26.97

28.58

30.30

32.12

Statement of Net Working Capital

Less :-

Dec-71
Total Current Assets
28
Total Current Liabilities
4
NET WORKING CAPITAL
24

Dec-76

21.41

Dec-76