C3 2004 2005 2006 2007 2008

Growth Index 1993 = 100

1990 1991 1992 1993 1994 199S 1996 1997 1998 1999 2000 2001 2002 2003 2004 200S 200$ 2007 2008

Hershey has consistently earned a return on invested capital of about 20 percent, even while interest rates and its WACC have declined. Thus, Hershey's spread has increased to an average of 12.8 percent over the five years from 1994 to 1998. Returns on invested capital in this scenario are projected to remain essentially constant. Revenue growth is projected to be somewhat higher than in recent years and NOPLAT is projected to grow in line with revenues (in other words, margins are expected to remain constant). Managers can use information like this to assess the projection and to set long-term performance targets.

In summary, return on invested capital (relative to WACC) and growth are the fundamental drivers of a company's value. To increase its value, a company must do one or more of the following:

• Increase the level of profits it earns on its existing capital in place (earn a higher return on invested capital on legacy assets).

• Ensure that the return on new capital investment exceeds WACC.

• Increase its growth rate, but only as long as the return on new capital exceeds WACC.

• Reduce its cost of capital.

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