2019 Cost of Capital Wireless

WIRELESS

COST OF CAPITAL STUDY

YIELD CAPITALIZATION 2019 ASSESSMENT YEAR

APPENDIX C

EQUITY RATE

CAPITAL ASSET PRICING MODEL CAPM Ex Ante

DIVIDEND GROWTH MODELS (Single Stage) Value Line, based on Dividends Growth Value Line, based on Earnings Growth Value Line, based on Return on Equity

FCFE GROWTH MODEL (Multi Stage)

DEBT RATE SECURED DEBT (LEASE) RATE

8.65%

8.50% 11.50% 11.75% 17.00%

9.25%

RANGE

8.5% - 17%

5.25% 4.25%

PAGE 6

7 8 9 10

11 11

MARKET CAPITAL STRUCTURE

Equity Debt Marginal Tax Rate

60%

x 9.25%

=

5.55%

3

40%

x 5.25%

=

2.10%

3

24%

= (1-.24)

x

2.10%

1.60%

3

WEIGHTED AVERAGE COST OF CAPITAL

7.1%

rounded

Page 1

SUPPORT FOR GUIDELINE COMPANIES

WASHINGTON STATE DEPARTMENT OF REVENUE 2019 ASSESSMENT YEAR WIRELESS

Company Ticker

AT&T Inc

T

Verizon

VZ

Sprint Corp S

US Cellular USM

T-Mobile

TMUS

Mean

Weighted Mean

Median

Std Dev

Coeff Var

Max

Min

Harmonic Mean

Say

Beta

0.80 0.75 1.20 1.05 0.95 0.95

Fin'l Strength

A++ A++ C++ B+ B+ B++

Trailing Operting P/E

Margin Ratio

n/a

8.5

n/a

11.9

36.8%

79.9

17.5%

26.8

27.2%

21.1

27%

29.6

Div'd Yield

7.27% 4.26% 0.00% 0.00% 0.00% 2.31%

0.95 0.18 0.19 1.20 0.75 0.92

1.00

21.1

0.00% 3.33% 144.49% 7.27% 0.00%

Common Stock

184,164,800,000 54,708,275,800 28,351,246,200 4,056,335,000 24,715,924,470

59,199,316,294 295,996,581,470

%

52.6% 34.1% 43.9% 71.6% 45.8% 49.6% 46.6% 45.8% 14.0% 28.2% 71.6% 34.1% 46.74%

Preferred Stock

20,000,000

20,000,000

%

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.00% 0.0% 0.0% 2.236068 0.0% 0.0%

Capital Structure at Book Value

Long Term Debt

%

Total Debt & Equity

166,250,000,000 105,873,000,000

36,288,000,000 1,605,000,000

29,263,000,000 67,855,800,000 339,279,000,000

47.4% 65.9% 56.1% 28.4% 54.2% 50.4% 53.4% 54.2% 14.0% 27.8% 65.9% 28.4% 46.39%

350,414,800,000 160,581,275,800

64,639,246,200 5,661,335,000

53,998,924,470

635,295,581,470

Page 2

SUPPORT FOR CAPITAL STRUCTURE

MARKET VALUE

WASHINGTON STATE DEPARTMENT OF REVENUE 2019 ASSESSMENT YEAR WIRELESS

Company

Ticker Stock Price

Common Shares

AT&T Inc Verizon Sprint Corp US Cellular T-Mobile

T VZ S USM TMUS

Source: Stock Price: Yahoo Market Value Debt: Bond Analysis

28.07

7,285,000,000

55.64

4,132,045,000

5.82

4,079,316,000

51.97

86,305,000

63.61

850,221,000

Mean

Weighted Mean

Median

Harmonic Mean

Std Dev

Coeff Var

Max

Min

Say

Common Stock

204,489,950,000 229,906,983,800

23,741,619,120 4,485,270,850

54,082,557,810

516,706,381,580

%

53.1% 66.0% 36.5% 74.2% 67.3% 59.4% 58.4% 66.0% 55.7% 14.9% 25.1% 74.2% 36.5%

60%

Preferred Stock

20,000,000

20,000,000

%

0.0% 0.0% 0.0% 0.0% 0.025% 0.0% 0.00% 0.00% 7% 0.01% 223.61% 0.0% 0.0%

0%

Capital Structure at Market Value

Long Term Debt

%

Total Debt & Equity

180,659,000,000 118,535,000,000

41,286,000,000 1,561,000,000

26,277,000,000

368,318,000,000

46.9% 34.0% 63.5% 25.8% 32.7% 40.6% 41.6% 34.0% 36.8% 14.9% 36.7% 63.5% 25.8%

40%

385,148,950,000 348,441,983,800

65,027,619,120 6,046,270,850

80,379,557,810

885,044,381,580

Page 3

SUPPORT FOR MARKET MULTIPLES

WASHINGTON STATE DEPARTMENT OF REVENUE 2019 ASSESSMENT YEAR WIRELESS

Company

AT&T Inc Verizon Sprint Corp US Cellular T-Mobile

Ticker

Stock Price

T

28.07

VZ

55.64

S

5.82

USM

51.97

TMUS

63.61

Mean

Median

Harmonic Mean

Max

Min

Std Dev

Coefficient of Variation

Harmonic Mean

Percentile .25

Percentile .75

Say

Revenues

23.45 31.67

8.30 45.97 50.94

Multiple

1.2 1.8 0.7 1.13 1.2 1.2 1.2 1.1 1.8 0.70 0.4 0.3 1.1 1.1 1.2

1.25

Cash Flow

7.19 6.10 2.45 9.30 11.03

Multiple

3.9 9.1 2.4 5.6 5.8 5.4 5.6 4.4 9.1 2.4 2.5 0.5 4.4 3.9 5.8

5.50

Earnings

3.52 4.71 0.10 1.72 3.36

Multiple

8.0 11.8 58.2 30.2 18.9 25.4 18.9 16.0 58.2 8.0 20.2 0.8 16.0 11.8 30.2

Book Value

25.28 13.24

6.95 47.00 29.07

Multiple

1.1 4.2 0.84 1.1 2.19 1.9 1.1 1.4 4.2 0.84 1.4 0.7 1.4 1.1 2.2

1.50

Page 4

ENTERPRISE VALUE MULTIPLES

WASHINGTON STATE DEPARTMENT OF REVENUE 2019 ASSESSMENT YEAR WIRELESS

Guideline Companies Ticker Enterprise Value

EBITDA

One Year

EV / Cash Flow

EBITDA

Rate

Change VL

EBITDA

EV / EBITDA

Revenue

EV/Sales Cash Flow Debt Service EV / CF

AT&T Inc

T

$ 385,148,950,000

Verizon

VZ

$ 348,441,983,800

Sprint Corp

S

$ 61,574,619,120

US Cellular

USM

$ 4,925,270,850

T-Mobile

TMUS $ 80,379,557,810

Mean

Median

Max

Min

Std Dev

Coefficient of Variation

Harmonic Mean

Say

historic 54,572,000,000 48,372,000,000 14,087,000,000

5,899,000,000 14,795,000,000

historic 7.06 7.20 4.37 0.83 5.43

forecast 7.8% 0.0% 6.1% -5.4%

11.1%

forecast 58,822,392,211 48,372,000,000 14,949,469,388

5,581,849,462 16,431,436,990

forecast 6.55 7.20 4.12 0.88 4.89

4.73 4.89 7.20 0.88 2.48 0.52 2.67

5.00

Forecast 184,674,750,000 132,018,837,750

34,266,254,400 4,112,433,250

45,444,312,450

Forecast 2.09 2.64 1.80 1.20 1.77

1.90 1.80

2.64 1.20 0.52 0.28 1.78 2.00

Forecast 56,458,750,000 25,284,500,000 10,595,000,000

756,800,000 10,351,250,000

Forecast 9,484,597,500 6,223,087,500 2,167,515,000

81,952,500 1,379,542,500

5.84 11.06

4.82 5.87 6.85 6.89 5.87 11.06 4.82 2.44 0.35 6.37 7.00

Enterprise Value

EV/EBITDA Correlation

$450,000,000,000 $400,000,000,000 $350,000,000,000 $300,000,000,000 $250,000,000,000 $200,000,000,000 $150,000,000,000 $100,000,000,000

$50,000,000,000 $-

R? = 0.9917

40,000,000,000 EBITDA (Forecast)

80,000,000,000

EV/EBITDA Correlation

Linear (EV/EBITDA Correlation)

4.00 put in income direct excluding IPP 6.50 put in income direct including IPP

Forecast EV/EBITDA By Rank

Guideline Companies US Cellular Sprint Corp T-Mobile AT&T Inc Verizon

EV/EBITDA forecast 0.88 4.12 4.89

6.55 7.20

3.30 Low Average 4.12 Low Median 4.00 Say 6.21 Average 6.55 Median 6.50 Say

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