Exhibit A - MSFT Co.

Stock valuation
($ in thousands) -0.04
Actual Projected
Fiscal Year Ended FY1992 FY1993 FY1994 FY1995E FY1996E FY1997E FY1998E
Revenues 2,759,000 3,753,000 4,649,000 5,811,250 7,264,063 9,080,078 11,350,098
Direct Operating Exp (1,296,000) (1,794,000) (2,160,000) (2,673,175) (3,341,469) (4,176,836) (5,221,045)
SG&A (90,000) (119,000) (166,000) (230,740) (320,729) (445,813) (619,680)
EBITDA 1,373,000 1,840,000 2,323,000 2,907,335 3,601,865 4,457,429 5,509,373
Depreciation & Amort. (112,000) (151,000) (237,000) (290,563) (363,203) (454,004) (567,505)
EBIT 1,261,000 1,689,000 2,086,000 2,616,773 3,238,662 4,003,426 4,941,868
Taxes (~35%) (333,000) (448,000) (576,000) (706,529) (874,439) (1,080,925) (1,334,304)
Debt Free Earnings 928,000 1,241,000 1,510,000 1,910,244 2,364,223 2,922,501 3,607,564

Plus: Depreciation & Amort. 112,000 151,000 237,000 290,563 363,203 454,004 567,505
Less: CAPEX (317,000) (236,000) (278,000) (348,675) (435,844) (544,805) (681,006)
(Increase) in Working Capital 0 0 0 0 0 0 0
Unlevered Free Cash Flow 723,000 1,156,000 1,469,000 1,852,131 2,291,583 2,831,700 3,494,063

PV of FCF
Discount Factor 7% 1,730,964 2,001,557 2,311,511 2,665,604 8,709,635
Discount Factor 8% 1,714,937 1,964,663 2,247,895 2,568,240 8,495,734
Discount Factor 9% 1,699,203 1,928,779 2,186,592 2,475,282 8,289,856
Exhibit B - Industry Beta Comparison
Company Ticker Debt to Equity Tax Rate Levered Beta Unlevered Beta
msft None 0.2 35% 1.07 1.37
American Standard ASD 0.87 40% 0.82 0.73
American Woodmark AMWD 0.16 40% 0.76 1.09
masco MAS 0.2 40% 1.28 1.78
Briggs & Stratton BGG 0.21 40% 0.66 0.91
Cummins Diesel CUM 0.61 40% 1.09 1.13
Detroit Diesel DDC 0.21 40% 1.30 1.79
Industry Average 0.99 1.26
Relever Industry Average for Kohler 0.2 40% Err:522 Err:522

Bl = Bu x [1 + (1 – tax rate) x (D / E)], or

Bu = Bl / [1 + (1 – tax rate) x (D / E)]
Exhibit C - MSFT. - Cost of Capital

Cost of Equity (Ke)

Risk Free Rate (Rf) 10yr Treasury 04/1998 5.64
Mkt Risk Premium 8.5
Size Premium - 1
Beta 1.07
Ke =5.64% + 1.07(8.5% +1%)
Ke = 15.81%

Cost of Debt (Kd)

Estimated All-In Cost for Company 8.50%
Effective Tax Rate 35%
Kd = 6.5% * (1-40%)
Kd= 6%

Cost of Preferred (Kp)

Balance Sheet does not show any Preferred Stock
Kp= 0%

Equity: $54*581M shares 29,994,000,000 97%

Debt: 913,000,000 3%
Total Value: 30,907,000,000

WACC = Kd (1-T)(D/V) + Ke(E/V)

WACC = 15.4%
Exhibit D - DCF Analysis: Using Perpetuity Growth Rate for Terminal Value (in $ thousands)

Discount Rate 10% 11% 12%

Perpetuity Growth Rate 2% 3% 4% 2% 3% 4% 2% 3% 4%
2001E Unlevered FCF 3,494,063 3,494,063 3,494,063 3,494,063 3,494,063 3,494,063 3,494,063 3,494,063 3,494,063
Terminal Value 44,549,300 51,412,638 60,563,754 39,599,378 44,986,058 51,911,789 35,639,440 39,987,607 45,422,816

PV of Terminal Value 30,427,771 35,115,523 41,365,859 26,085,337 29,633,710 34,195,904 22,649,508 25,412,847 28,867,021
PV of Free Cash Flow 8,709,635 8,709,635 8,709,635 8,495,734 8,495,734 8,495,734 8,289,856 8,289,856 8,289,856
(Add Back)Cash and Cash Equivalents 70,978 70,978 70,978 70,978 70,978 70,978 70,978 70,978 70,978
Implied Value of Enterprise 39,208,385 43,896,137 50,146,472 34,652,049 38,200,422 42,762,616 31,010,343 33,773,682 37,227,855

Average Value 38,986

DCF Analysis: Using EBITDA Multiple for Terminal Value (in $ thousands)

Discount Rate 10% 11% 12%

EBITDA Multiple 5 8 12 5 8 12 5 8 12
2001E EBITDA 5,509,373 5,509,373 5,509,373 5,509,373 5,509,373 5,509,373 1,405,350 1,405,350 1,405,350
Terminal Value 27,546,865 44,074,984 66,112,476 27,546,865 44,074,984 66,112,476 7,026,749 11,242,799 16,864,198

PV of Terminal Value 18,814,879 30,103,807 45,155,711 18,145,973 29,033,557 43,550,336 4,465,626 7,145,002 10,717,503
PV of Free Cash Flow 8,709,635 8,709,635 8,709,635 8,495,734 8,495,734 8,495,734 8,289,856 8,289,856 8,289,856
(Add Back)Cash and Cash Equivalents 70,978 70,978 70,978 70,978 70,978 70,978 70,978 70,978 70,978
Implied Value of Enterprise 27,595,493 38,884,420 53,936,324 26,712,686 37,600,270 52,117,048 12,826,461 15,505,836 19,078,337

Average Value 31,584

DCF Analysis: Using Sales Multiple for Terminal Value (in $ thousands)

Discount Rate 10% 11% 12%

Sales Multiple 1 2 3 1 2 3 1 2 3
2001E Sales 11,350,098 11,350,098 11,350,098 11,350,098 11,350,098 11,350,098 11,350,098 11,350,098 11,350,098
Terminal Value 11,350,098 22,700,195 34,050,293 11,350,098 22,700,195 34,050,293 11,350,098 22,700,195 34,050,293

PV of Terminal Value 7,752,269 15,504,539 23,256,808 7,476,661 14,953,322 22,429,983 7,213,192 14,426,385 21,639,577
PV of Free Cash Flow 8,709,635 8,709,635 8,709,635 8,495,734 8,495,734 8,495,734 8,289,856 8,289,856 8,289,856
(Add Back)Cash and Cash Equivalents 70,978 70,978 70,978 70,978 70,978 70,978 70,978 70,978 70,978
Implied Value of Enterprise 16,532,883 24,285,152 32,037,422 16,043,373 23,520,034 30,996,695 15,574,027 22,787,219 30,000,411

Average Value 23,531