Case - Flash Memory, Inc. - Solution

Flash Memory, Inc. Exhibit 1 Actual and Forecasted Financial Statements Assuming No Investment in New roduct !ine, No Sale o" New #ommon Stoc$, and All %orrowings at &.'() Income Statement *+s exce-t ES Actual

Forecast

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'11

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$77,131 $2,519 81.1% $14,12

$80,953 5.0% $8,382 84.5% $12,571

$89,250 10.2% $72,424 81.1% $1,82

$120,000 34.5% $97,320 81.1% $22,80

$144,000 20.0% $11,784 81.1% $27,21

$144,000 0.0% $11,784 81.1% $27,21

$3,72 4.8% $,594 8.5% $4,292

$4,133 5.1% $7,53 9.3% $902

$4,41 4.9% $7,458 8.4% $4,952

$,000 5.0% $10,032 8.4% $,48

$7,200 5.0% $12,038 8.4% $7,978

$7,200 5.0% $12,038 8.4% $7,978

$480

$52

$735

-$39

-$27

-$35

$937 9.25% -$50

$1,323 9.25% -$50

$1,55 9.25% -$50

)&o"e efore #&o"e ta*es

$3,773

$223

$4,182

$5,1

$,04

$,33

)&o"e ta*es - % of #&o"e efore ta*es et #&o"e

$1,509 40.0% $2,24

$89 39.9% $134

$1,73 40.0% $2,509

$2,24

$2,42

$2,545

$3,39

$3,93

$3,818

$1.52

$0.09

$1.8

$2.28

$2.

$2.5

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$2,53 3.3% $10,988 33 $9,592 5 $309 0.3% $23,425

$2,218 2.7% $12,84 33 $11,072 59 $324 0.2% $2,478

$2,934 3.3% $14,71 37 $11,509 58 $357 0.2% $29,471

$3,90 3.3% $19,72 0 $13,85 52 $480 0.4% $38,031

$4,752 3.3% $23,71 0 $1,38 52 $57 0.4% $45,37

$4,752 3.3% $23,71 0 $1,38 52 $57 0.4% $45,37

$5,30 $792 $4,514

$,11 $1,174 $4,942

$7,282 $1,33 $5,49

$8,182 $2,179 $,003

$9,082 $2,793 $,290

$9,982 $3,474 $,508

$27,939

$31,420

$35,120

$44,034

$51,92

$52,145

&&ots (aale (aale - as (r&hases otes (aale

$3,084 30 $,20

$4,28 38 $8,873

$3,929 33 $10,132

$4,799 30 $14,30

$5,759 30 $1,914

$5,759 30 $13,325

&&red e*(eses e*(eses

$53

$591

$52

$87

$1,051

$1,051

)&o"e ta*es (aale - % of ta*es Other &rret l#a#l#t#es - % of sales otal &rret l#a#l#t#es

$151 10% $478 0.% $10,89

$9 10% $502 0.% $14,243

$17 10% $554 0.% $15,434

$22 10% $744 0.% $20,951

$24 10% $893 0.% $24,881

$255 10% $893 0.% $21,282

Co""o sto&: at $0.01 (er share (ar 'ale a#d # &a(#tal # e*&ess of (ar 'ale eta#ed ear#gs otal shareholders; e#t

$15 $7,980 $9,048 $17,043

$15 $7,980 $9,182 $17,177

$15 $7,980 $11,91 $19,8

$15 $7,980 $15,087 $23,082

$15 $7,980 $19,050 $27,045

$15 $7,980 $22,88 $30,83

otal l#a#l#t#es 6 shareholders; e#t

$27,939

$31,420

$35,120

$44,034

$51,92

$52,145

1,491,2

1,491,2

1,491,2

1,491,2

1,491,2

1,491,2

$11.43

$11.52

$13.20

$15.47

$18.13

$20.9

etr o e#t )terest &o'erage rat#o +t#"es otes (aale = a&&ots re&e#'ale otes (aale = shareholders; e#t otal l#a#l#t#es = shareholders; e#t

13.3% 8.9 0.2% 38.8% 3.9%

0.8% 1.4 9.0% 51.7% 82.9%

12.7% .7 9.1% 51.5% 78.4%

14.7% 7.1 72.5% 2.0% 90.8%

14.7% .0 71.5% 2.5% 92.0%

12.4% 5.1 5.3% 43.2% 9.0%

Sales - YOY growth Cost of goods sold - % of sales !ross "arg# esear&h ad de'elo("et - % of sales Sell#g, geeral ad ad"##strat#'e - % of sales O(erat#g #&o"e )terest e*(ese - )terest rate % Other #&o"e +e*(eses

/ar#gs (er share

Exhibit 1 *continued %alance Sheet *+s exce-t shares outstanding and boo$ value -er share Actual

Cash - % of sales &&ots re&e#'ale re&e#'ale - as of sales )'etor#es - as of CO!S re(a#d e*(eses - % of sales otal &rret assets ro(ert, (lat 6 e#("et at &ost ess &&"lated de(re&#at#o et (ro(ert, (lat 6 e#("et otal assets

"er of shares otstad#g

Forecast

$128,000 -11.1%

Flash Memory, Inc. Exhibit ' #alculation o" o" #ost o" o" #a-ital Ste- 1  #alculation o" asset %eta "or the industry using mar$et value weights2

>#&ro e&holog  ? oo: 'ale of det +4-30-2010 <@/ ? oo: 'ale of e#t +4-30-2010 >@/ ? "ar:et 'ale of e#t +4-30-2010

$2,70 $5,03 $7,925

βE ? e#t or le'ered eta βA ? asset or le'ered eta

Sa#s: Cor(orat#o  ? oo: 'ale of det +4-30-2010 <@/ ? oo: 'ale of e#t +4-30-2010 >@/ ? "ar:et 'ale of e#t +4-30-2010

$975 $4,157 $9,135


S/C, )&.  ? oo: 'ale of det +4-30-2010 <@/ ? oo: 'ale of e#t +4-30-2010 >@/ ? "ar:et 'ale of e#t +4-30-2010

$0 $27 $99


'erage βA for the #dstr

Exhibit ' *continued

#alculation o" #ost o" #a-ital

Ste- '  #alculation o" cost o" e3uity ca-ital "or Flash Memory, Inc.2

Crret we#ghts of det ad e#t  ? 'ale of a: det fro" 2009 ala&e sheet / ? 'ale of e#t at $25 (er share S#&e Alash #s at the l#"#t of #ts &rret loa agree"et, "aage"et el#e'es th#s #s a h#gher (ro(ort#o of det f#a&e tha o(t#"al. s stated # the &ase, "aage"et has set target &a(#tal str&tre we#ghts eal to 18% det ad 82% e#t.

$10,132 $37,292

Alash >e"or, )&.  ? target 'ale of det / ? target 'ale of e#t βA ? a'erage asset eta for the #dstr βE ? e#t or le'ered eta

Cost of e#t &a(#tal for Alash 5e 6 7" 8 βE x Mar$et 7is$ remium

f ? r#s:-free rate of retr βE ? Alash;s e#t or le'ered eta ss"ed "ar:et r#s: (re"#" Be ? Alash;s &ost of e#t &a(#tal

Ste- 4  #alculation o" cost o" ca-ital "or Flash Memory, Memory, Inc.2 5 6 9d x 5d x *1  : 8 9 e x 5e

d ? we#ght of det # Alash;s &a(#tal str&tre Bd ? Alash;s &ost of det &a(#tal +a  ? Alash;s #&o"e ta* rate e ? we#ght of e#t # Alash;s &a(#tal str&tre Be ? Alash; &ost of e#t &a(#tal B ? Alash;s &ost of &a(#tal +a at 18% we#ght of det Alash w#ll e w#th# the 70% of a&&ots re&e#'ale l#"#t of the e*#st#g loa agree"et, ths the 7.25% &ost of det &a(#tal. &a(#tal. )f Alash was o'er th#s l#"#t ad &haged to fa&tor#g, the &ost of det &a(#tal wold #&rease to 9.25%, ad the e#t eta ad &ost of e#t &a(#tal wold also #&rease.

25.8% 74.2% 1.25 1.03

9.% 90.4% 1.3 1.28

0.0% 100.0% 1.00 1.00 1.10

21.4% 78.%

18.0% 82.0% 1.10 1.25

3.70% 1.25 .00% 11.20%

18.00% 7.25% 40.00% 82.00% 11.20% 9.9%

Flash Memory, Inc. Exhibit 4 Net resent ;alue ;alue o" Investment Investment in New roduct !ine !ine *+s '  1 -$2,200

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' 1 4

)'est"et # e#("et

et wor:#g &a(#tal re#red to s((ort sales - % of sales )'est"et # et wor:#g &a(#tal +the ear-o-ear &hage

$5,48 2.15% -$5,48

$7,322 2.15% -$1,74

$7,322 2.15% $0

$2,877 2.15% $4,44

$1,308 2.15% $1,59

$0 2.15% $1,308

$21,00 $17,04 79.00% $0 $1,80 8.3% $300

$28,000 $22,120 79.00% $0 $2,341 8.3% $0

$28,000 $22,120 79.00% $0 $2,341 8.3% $0

$11,000 $8,90 79.00% $0 $920 8.3% $0

$5,000 $3,950 79.00% $0 $418 8.3% $0

)&o"e efore #&o"e ta*es )&o"e ta*es D 40%

$2,430 $972

$3,539 $1,41

$3,539 $1,41

$1,390 $55

$32 $253

et #&o"e e(re&#at#o of e#("et D 20% S>

$1,458 $440

$2,124 $440

$2,124 $440

$834 $440

$379 $440

Cash flow fro" o(erat#os

$1,898

$2,54

$2,54

$1,274

$819

$225

$2,54

$7,009

$2,843

$2,127

Sales Cost of goods sold +#&ldes e#("et de(re&#at#o - % of sales esear&h 6 de'elo("et Sell#g, geeral 6 ad"##strat#'e - % of slaes a&h (ro"ot#o

otal &ash flow

-$7,848

@ D &ost of &a(#tal ) >)

$3,014 21.9% 17.3%

Cost of &a(#tal

9.9%

' 1 <

'1 (

:otal

$0

$2,200

Flash Memory, Inc. Exhibit < #hange in Forecasted Financial Statements due to Acce-tance Acce-tance o" Investment in New roduct !ine Financial Statement Account *+s Actual '/

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Sales Cost of goods sold +#&ldes e#("et de(re&#at#o esear&h ad de'elo("et Sell#g, geeral ad ad"##strat#'e +#&ldes la&h )&rease # o(erat#g #&o"e Cash +3.3% of sales &&ots re&e#'ale re&e#'ale +0 SO )'etor#es +52 das of CO!S re(a#d e*(eses +0.4% of sales et (ro(ert, (lat 6 e#("et &&ots (aale (aale +0 das das of (r&hases (r&hases &&red e*(eses e*(eses +0.73% of sales Other &rret l#a#l#t#es +0.2% of sales

$2,200

Forecast '11

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$21,00 $17,04 $0 $2,10 $2,430

$28,000 $22,120 $0 $2,341 $3,539

$713 $3,551 $2,431 $8 $1,70

$924 $4,03 $3,151 $112 $1,320

$842 $158 $134

$1,091 $204 $174

'=.1()

'=.1()

For in"ormational -ur-oses only2 N9# ) o" sales

Flash Memory, Inc. Exhibit < #hange in Forecasted Financial Statements due to Acce-tance Acce-tance o" Investment in New roduct !ine Financial Statement Account *+s Actual '/

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'1

Sales Cost of goods sold +#&ldes e#("et de(re&#at#o esear&h ad de'elo("et Sell#g, geeral ad ad"##strat#'e +#&ldes la&h )&rease # o(erat#g #&o"e Cash +3.3% of sales &&ots re&e#'ale re&e#'ale +0 SO )'etor#es +52 das of CO!S re(a#d e*(eses +0.4% of sales et (ro(ert, (lat 6 e#("et

$2,200

Forecast '11

'1'

$21,00 $17,04 $0 $2,10 $2,430

$28,000 $22,120 $0 $2,341 $3,539

$713 $3,551 $2,431 $8 $1,70

$924 $4,03 $3,151 $112 $1,320

$842 $158 $134

$1,091 $204 $174

'=.1()

'=.1()

&&ots (aale (aale +0 das das of (r&hases (r&hases &&red e*(eses e*(eses +0.73% of sales Other &rret l#a#l#t#es +0.2% of sales

For in"ormational -ur-oses only2 N9# ) o" sales

Flash Memory, Inc. Exhibit ( Actual and Forecasted Financial Statements Assuming Acce-tance o" Investment in New roduct !ine, No Sale o" New #ommon Stoc$, and All %orrowings at &.'() Income Statement *+s exce-t earnings -er share

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Actual '0

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'1

Forecast '11

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$77,131 $2,519 $14,12

$80,953 $8,382 $12,571

$89,250 $72,424 $1,82

$120,000 $97,320 $22,80

$15,00 $133,848 $31,752

$172,000 $138,904 $33,09

$3,72 $,594 $4,292

$4,133 $7,53 $902

$4,41 $7,458 $4,952

$,000 $10,032 $,48

$7,200 $14,144 $10,408

$7,200 $14,379 $11,517

$480 -$39

$52 -$27

$735 -$35

$937 -$50

$1,527 -$50

$2,118 -$50


$3,773

$223

$4,182

$5,1

$8,831

$9,349

)&o"e ta*es et #&o"e

$1,509 $2,24

$89 $134

$1,73 $2,509

$2,24 $3,39

$3,532 $5,299

$3,740 $5,09

$1.52

$0.09

$1.8

$2.28

$3.55

$3.7

Sales Cost of goods sold !r ! ross "arg# esear&h ad de'elo("et Sell#g, geeral ad ad"##strat#'e O( O (erat#g #&o"e )terest e*(ese Other #&o"e +e*(eses


Exhibit ( *continued %alance Sheet *+s exce-t shares outstanding and boo$ value -er share

Flash Memory, Inc. Exhibit ( Actual and Forecasted Financial Statements Assuming Acce-tance o" Investment in New roduct !ine, No Sale o" New #ommon Stoc$, and All %orrowings at &.'() Income Statement *+s exce-t earnings -er share

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Actual '0

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'1

Forecast '11

'1'

$77,131 $2,519 $14,12

$80,953 $8,382 $12,571

$89,250 $72,424 $1,82

$120,000 $97,320 $22,80

$15,00 $133,848 $31,752

$172,000 $138,904 $33,09

$3,72 $,594 $4,292

$4,133 $7,53 $902

$4,41 $7,458 $4,952

$,000 $10,032 $,48

$7,200 $14,144 $10,408

$7,200 $14,379 $11,517

$480 -$39

$52 -$27

$735 -$35

$937 -$50

$1,527 -$50

$2,118 -$50


$3,773

$223

$4,182

$5,1

$8,831

$9,349


$1,509 $2,24

$89 $134

$1,73 $2,509

$2,24 $3,39

$3,532 $5,299

$3,740 $5,09

$1.52

$0.09

$1.8

$2.28

$3.55

$3.7

'/

'0

'&

'1

Forecast '11

'1'

$2,53 $10,988 $9,592 $309 $23,425

$2,218 $12,84 $11,072 $324 $2,478

$2,934 $14,71 $11,509 $357 $29,471

$3,90 $19,72 $13,85 $480 $38,031

$5,45 $27,222 $19,09 $2 $52,418

$5,7 $28,274 $19,789 $88 $54,427

$5,30 $792 $4,514

$,11 $1,174 $4,942

$7,282 $1,33 $5,49

$10,382 $2,179 $8,203

$11,282 $3,233 $8,050

$12,182 $4,354 $7,828

$27,939

$31,420

$35,120

$4,234

$0,47

$2,255

&&ots (aale (aale otes (aale &&red e*(eses e*(eses )&o"e ta*es (aale Other &rret l#a#l#t#es otal &rret l#a#l#t#es

$3,084 $,20 $53 $151 $478 $10,89

$4,28 $8,873 $591 $9 $502 $14,243

$3,929 $10,132 $52 $17 $554 $15,434

$4,799 $1,50 $87 $22 $744 $23,151

$,01 $22,897 $1,209 $353 $1,027 $32,08

$,850 $18,719 $1,25 $374 $1,0 $28,25


$15 $7,980 $9,048 $17,043

$15 $7,980 $9,182 $17,177

$15 $7,980 $11,91 $19,8

$15 $7,980 $15,087 $23,082

$15 $7,980 $20,38 $28,381

$15 $7,980 $25,995 $33,990


$27,939

$31,420

$35,120

$4,234

$0,47

$2,255

1,491,2

1,491,2

1,491,2

1,491,2

1,491,2

1,491,2

$11.43

$11.52

$13.20

$15.47

$19.03

$22.79


13.3% 8.9 0.2% 38.8% 3.9%

0.8% 1.4 9.0% 51.7% 82.9%

12.7% .7 9.1% 51.5% 78.4%

14.7% 7.1 83.7% 71.5% 100.3%

18.7% .8 84.1% 80.7% 113.1%

1.5% 5.4 .2% 55.1% 83.2%

Sales Cost of goods sold !r ! ross "arg# esear&h ad de'elo("et Sell#g, geeral ad ad"##strat#'e O( O (erat#g #&o"e )terest e*(ese Other #&o"e +e*(eses


Exhibit ( *continued %alance Sheet *+s exce-t shares outstanding and boo$ value -er share Actual

Cash &&ots re&e#'ale re&e#'ale )'etor#es re(a#d e*(eses otal &rret assets ro(ert, (lat 6 e#("et at &ost ess &&"lated de(re&#at#o et (ro(ert, (lat 6 e#("et otal assets


Flash Memory, Inc. Exhibit = Actual and Forecasted Financial Statements Assuming Acce-tance Acce-tance o" Investment in New roduct !ine, Sale o" 4, Shares o" #ommon Stoc$ 7eceiving Net roceeds o" +'4 -er share, and All %orrowings at /.'() Income Statement *+s exce-t earnings -er share

'/

Actual '0

'&

'1

Forecast '11

'1'

$77,131 $2,519 $14,12

$80,953 $8,382 $12,571

$89,250 $72,424 $1,82

$120,000 $97,320 $22,80

$15,00 $133,848 $31,752

$172,000 $138,904 $33,09

$3,72 $,594 $4,292

$4,133 $7,53 $902

$4,41 $7,458 $4,952

$,000 $10,032 $,48

$7,200 $14,144 $10,408

$7,200 $14,379 $11,517

$480 -$39

$52 -$27

$735 -$35

$735 -$50

$87 -$50

$1,112 -$50


$3,773

$223

$4,182

$5,83

$9,71

$10,355


$1,509 $2,24

$89 $134

$1,73 $2,509

$2,345 $3,518

$3,88 $5,802

$4,142 $,213

$1.52

$0.09

$1.8

$1.9

$3.24

$3.47

'/

'0

'&

'1

Forecast '11

'1'

$2,53 $10,988 $10,988 $9,592 $309 $23,425

$2,218 $12,84 $12,84 $11,072 $324 $2,478

$2,934 $14,71 $14,71 $11,509 $357 $29,471

$3,90 $19,72 $19,72 $13,85 $480 $38,031

$5,45 $27,222 $27,222 $19,09 $2 $52,418

$5,7 $28,274 $28,274 $19,789 $88 $54,427

$5,30 $792 $4,514

$,11 $1,174 $4,942

$7,282 $1,33 $5,49

$10,382 $2,179 $8,203

$11,282 $3,233 $8,050

$12,182 $4,354 $7,828

$27,939

$31,420

$35,120

$4,234

$0,47

$2,255

&&ots (aale (aale otes (aale &&red e*(eses e*(eses )&o"e ta*es (aale Other &rret l#a#l#t#es o otal &rret l#a#l#t#es

$3,084 $,20 $53 $151 $478 $10,89

$4,28 $8,873 $591 $9 $502 $14,243

$3,929 $10,132 $52 $17 $554 $15,434

$4,799 $9,47 $87 $235 $744 $1,130

$,01 $15,338 $1,209 $387 $1,027 $24,51

$,850 $10,550 $1,25 $414 $1,0 $20,13


$15 $7,980 $9,048 $17,043

$15 $7,980 $9,182 $17,177

$15 $7,980 $11,91 $19,8

$18 $14,877 $15,209 $30,104

$18 $14,877 $21,012 $35,907

$18 $14,877 $27,224 $42,119


$27,939

$31,420

$35,120

$4,234

$0,47

$2,255

1,491,2

1,491,2

1,491,2

1,791,2

1,791,2

1,791,2

$11.43

$11.52

$13.20

$1.80

$20.04

$23.51


13.3% 8.9 0.2% 38.8% 3.9%

0.8% 1.4 9.0% 51.7% 82.9%

12.7% .7 9.1% 51.5% 78.4%

11.7% 9.1 48.0% 31.5% 53.%

1.2% 15.1 5.3% 42.7% 8.4%

14.8% 10.4 37.3% 25.0% 47.8%

Sales Cost of goods sold !r ! ross "arg# esear&h ad de'elo("et Sell#g, geeral ad ad"##strat#'e O(erat#g #&o"e )terest e*(ese Other #&o"e +e*(eses


Exhibit = *continued %alance Sheet *+s exce-t shares outstanding and boo$ value -er share Actual

Cash &&ots re&e#'ale re&e#'ale )'etor#es re(a#d e*(eses otal &rret assets ro(ert, (lat 6 e#("et at &ost ess &&"lated de(re&#at#o et (ro(ert, (lat 6 e#("et otal assets


Flash Memory, Inc. Exhibit / Summary Statistics

No Investment in New ro Sell No New Stoc$ %orrow at &.'() '1 '11

/ar#gs (er share )terest &o'erage rat#o +t#"es etr o e#t otes (aale = a&&ots re&e#'ale otes (aale = shareholders; e#t otal l#a#l#t#es = shareholders; e#t otes (aale +000s

$2.28 $2. 7.1 .0 14.7% 14.7% 72.5% 71.5% 2.0% 2.5% 90.8% 92.0% $14,30 $1,914 Inve Invest st in in the the New New rod rodu u '1 '11


$2.28 $3.55 7.1 .8 14.7% 18.7% 83.7% 84.1% 71.5% 80.7% 100.3% 113.1% $1,50 $22,897 Inve Invest st in in the the New New rod rodu u '1 '11


$1.9 9.1 11.7% 48.0% 31.5% 53.% $9,47

$3.24 15.1 1.2% 5.3% 42.7% 8.4% $15,338

uct !ine

'1'

$2.5 5.1 12.4% 5.3% 43.2% 9.0% $13,325 t !ine '1'

$3.7 5.4 1.5% .2% 55.1% 83.2% $18,719 t !ine '1'

$3.47 10.4 14.8% 37.3% 25.0% 47.8% $10,550

Case - Flash Memory, Inc. - Solution

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