1. Chapter 8 Valuation Exhibits October 22, 2000

2. CAS-COD-Prez-Date-CTL Confidential 2

3. CAS-COD-Prez-Date-CTL Confidential 3

4. CAS-COD-Prez-Date-CTL Confidential 4

5. CAS-COD-Prez-Date-CTL Confidential 5

6. CAS-COD-Prez-Date-CTL Confidential 6  2000 The Marketspace Center, Monitor Group DO NOT REPRODUCE DO NOT DISTRIBUTE WITHOUT PERMISSION

7. CAS-COD-Prez-Date-CTL Confidential 7 15 Exhibit 8-6: Continuing Value Is Eighty Five Percent of Aol’s Value and Is Highly Sensitive to Assumptions of Long-term Growth and ROIC Return on New Investment (ROIC) Continuing Value 35%40%45% 8%$55,933$58,038$59,674 9%$80,934 $84,474 $87,228 NOPLAT Growth 10%$155,025$162,820$168,883 WACC = 11% in the long run

8. CAS-COD-Prez-Date-CTL Confidential 8  2000 The Marketspace Center, Monitor Group DO NOT REPRODUCE DO NOT DISTRIBUTE WITHOUT PERMISSION

9. CAS-COD-Prez-Date-CTL Confidential 9

10. CAS-COD-Prez-Date-CTL Confidential 1010

11. CAS-COD-Prez-Date-CTL Confidential 1 Exhibit 8-10: Monte Carlo Simulation of the Probability Distribution of Present Values Probability $ BN -15,400-13,300-11,200-9,100-7,000-4,900-2,800-7001,4003,5005,6007,7009,80011,900

12. CAS-COD-Prez-Date-CTL Confidential 1212

13. CAS-COD-Prez-Date-CTL Confidential 1313

14. CAS-COD-Prez-Date-CTL Confidential 1414 Exhibit 8-13: Cash Flows and Probabilities for the First Two Years of the Project 0 1 2 100 83. 3 120 144 100 69. 4 C D E B A F 1 0.272 0.727 0.529 0.39 6 0.07 4 C D E B A F 0 1 2 Free Cash Flows Tree Objective Probability Tree

15. CAS-COD-Prez-Date-CTL Confidential 1515 Exhibit 8-14: Free Cash Flows Tree and NPV for the Case Without Additional Test 0 1 2 3 4 100 83. 3 120 E(FCF ) 100 110 631.63 PV 722 Inv. 400 NPV 322 C D E B A F

16. CAS-COD-Prez-Date-CTL Confidential 1616 Exhibit 8-15: Objective Probabilities for the Case With Additional Test 0 1 2 3 4 1 0.272 0.727 0.529 0.39 6 0.07 4 0.264 0.198 0. 037 50% 0.264 0.198 0. 037 0.529 0.39 6 0.07 4  p=1 C D E B A F

17. CAS-COD-Prez-Date-CTL Confidential 1717 Exhibit 8-16: Free Cash Flows Tree for the Case With Additional Test 0 1 2 3 4 100 83. 3 120 144-120 = 24 100-120 =- 20 69.4-120 =- 50.6 0 0 0 50% Optimal Execution in year 4: the company decides whether to invest the $700 or cut off the project depending on the year 4 free cash flow E(FCF ) 100 110 1.02 PV 712.55 0 749.2 Inv. 400.00 NPV 312.55 C D E B A F

18. CAS-COD-Prez-Date-CTL Confidential 1818 Exhibit 8-17: ROA Free Cash Flow Tree 0 1 2 3 4 100 83. 3 120 C D E B A F Go straight to market Perform the market test Go straight to market Straight to market Conduct test market

19. CAS-COD-Prez-Date-CTL Confidential 1919 Exhibit 8-18: Present Value Tree for the Case Without Additional Test 0 1 2 3 4 803.7 683.7 722.0 622.0 365.0 281.7 884.0 400.0 69.4 C D E B A F

20. CAS-COD-Prez-Date-CTL Confidential 2020 Exhibit 8-19: ROA Value of the Project With Flexibility 0 1 2 3 4 803.75 683.75 728.84 628.84 384.20 884.0 400.0 300.9 103.24 A B F E D C PV728.84 Investment-400.00 ROA328.84 Replicating Portfolio for Node C At Node E: m400+B (1+r f ) = 400 At Node F: m69.4 + B (1+r f ) = 133.2 m =.807 B = -73.57 Value of replicating portfolio = mV + B =.807 (440) - 73.57 = 300.9

21. CAS-COD-Prez-Date-CTL Confidential 2121

22. CAS-COD-Prez-Date-CTL Confidential 2 Exhibit 8-21: The Rise in Schwab’s Market to Sales Ratio