Northrop Grumman Corporation

1. Northrop Grumman Corporation Module 5 – Discounted Cash Flow - Alex Aponte Section 2 – Acct 70311

2. Brief Overview of Northrop • Northrop Grumman Corporation is a leading global security company providing innovative systems, products and solutions in a number of key segments.

3. Overview of Northrop Grumman • Founded: 1939 under the name “Northrop Aircraft Incorporated” • In 1994, acquired “Grumman Aeronautical to form Northrop Grumman. • Headquarters: Falls Church, VA • Major Customer: U.S. Government (90% of sales)

4. Four Segments of Northrop • Aerospace Systems – 36.5% of sales – design, development, integration and production of manned aircraft, unmanned systems, spacecraft, etc. • Electronic Systems – 25.5% of sales – designs, develops and manufactures solutions a variety of defense electronics and systems for controlling a military environment.

5. Segments (continued) 3. Information Systems – 26.9% of sales – focuses on cyber-security; C4ISR; intelligence processing; ad air ad missile defense. 4. Technical Services– 11.1% of sales - provides training solutions, logistics services, and advanced technology in missile defense, nuclear security, and simulations.

6. Forecast for Northrop Grumman

7. Parsimonious Comparison

8. Parsimonious Assumptions

9. Northrop Grumman

10. Thoughts • Estimated Intrinsic Value: $19,178 • Used common 10% cost of capital until further considerations factored in • Based on the Sum of PV of CF and the PV of continuing value, the company is declining in value • Company’s FCF dances around, but enterprise value tapers off heading into perpetuity

11. Thoughts / Questions (cont’d) • Company’s above-average EPM slows the decline seen in free cash flows going into the future • Questions remaining – can we realistically expect the company to continue with such a decline in sales? • Does the market value Northrop as seen in the discounted cash flows model?

12. Questions?