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To: Ryan Hess who wrote (5096)	11/17/2000 2:31:08 AM
From: tinkershaw	Read Replies (2) \| Respond to of 10934

<<WACC of 16%>> Seems a little low? Choosing a discount rate is always difficult. One thing about NTAP that is unusual for such a "high flying stock" is its beta of .8. A beta usually more commensurate with more of a blue chip stock. I got the beta off of my MSN portfolio. Perhaps this beta is in error, but if not, the low beta is the only unusual factor in deriving the 16% WACC. Because in all actuality, when I did the calculation, the WACC I came up with was 13.6%; I considered this to be too low. So I used my judgment and moved it up to 16%. As a comparison I am using a 19.9% discount rate for the cost of equity for AMCC (I haven't bothered to toss in the small portion of debt yet to derive AMCC's total WACC). AMCC has a beta of 1.7 (same MSN source). I am using a Market premium of 15% and a risk free rate of 8%. Perhaps a risk-free rate of 20% might be more appropriate? (actually it might be given what the NASDAQ 100 has returned lately) Irregardless, by any reasonable calculation of NTAP valuation (perhaps excepting the most pessimistic of projections who think storage is only a fad, and a slow growing fad at that) NTAP is currently undervalued on a discounted cash-flow basis. It would most certainly go for 50%-100% more if someone were to try to acquire it. Tinker When I toss in the WACC calculated with a 20% market premium I get 17.6% which yields a acquisition price for NTAP of $35.5 billion or approximately a 50% premium from today's price. So you can certainly argue the proper discount rate but the range of valuations is certainly in line with the current stock price which does seem somewhat undervalued.