1. Valuing Scientific-Atlanta
Acquired by Cisco Systems which has a Beta of 1.31
Assume Risk Free Rate of 5% and Equity Premium of 5%
Net  $333,674  $155,808   $102,343
Earnings
Equates to 52% and 114% growth rates
But there appeared to be an acquisition in 2001 thus not “organic growth.”
Let’s use 50% growth rate for 3 years then terminal earnings.

2. Valuing Scientific-Atlanta Finding Cost of Capital
Cost of Capital = RF+(EP*B)
5+(5*1.31)=11.55

3. Valuing Scientific-Atlanta
Year Projected Discount PV
Earnings Rate
, ,687
, ,345
2004 1,126, ,312
1,863,344
1,126,151 = 9,750, ,297,038
.1155
$ 8,160,382
P/E of 24.5
Shares outstanding in ,899,158
$49.49 per share

4. Valuing Scientific-Atlanta
Alternatives
Use unleveraged Beta (but this company has no real debt capital.
Use a different measure of earnings like EBITDA for 2001 $577,155
,733
2003 1,298,600
2004 1,947,900
Yields a value of $11,069,908
Or use an EBITDA multiple (13x 2002 EBITDA, top of the range in the boom of broadband telecom) $11,254,529

5. Cisco bought it in 2006 for $43 per share or $6. 9 billion
Cisco bought it in 2006 for $43 per share or $6.9 billion. There appear to have been a little over 160 million outstanding shares.

6. Selected Financial Data (Dollars in Thousands, Except per Share Data) Sales $ 1,910,892 $ 1,708,004 $ 1,450,353 $ 1,671,117 $ 2,512,016 CostofSales 1,195,667 1,073, ,581 1,086,961 1,718,160 Sales and Admin 203, , , , ,161 R and D 163, , , , ,346 Restructuring Expense (291 ) 1,325 17,446 28,164 — Earnings before Income Taxes 322, , , , ,402 Net Earnings $ 210,760 $ 218,001 $ 100, ,384 $333,674 Thus they paid 37.3 times earnings compared to our P/E of 24.5

7. Net Earnings 210,760 Depreciation 78,954 Interest Expense (298,222) Taxes 112,147 EBITDA 103,639 (price is about 66x) Cash provided by operating $349,614

8. But press release says the price net of cash balances is really $5
But press release says the price net of cash balances is really $5.3 billion which is:
PE of 25 and EBITDA multiple of 51