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  • Session 13

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    Jamal Shahid
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    - Case A assumes a stable reinvestment rate of 50% of profits each year, leading to a growth rate of 10% and a net present value of the sixth year income of $2536.55. - Case B assumes a reinvestment rate of 50%, yielding a net present value of sixth year income of $1691.04. - Case C assumes a reinvestment rate of 40%, with a net present value of sixth year income of $1674.93. - Case D assumes a reinvestment rate of 0% and a net present value of sixth year income of $1674.93.

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    Business valuation Sessions

    Original Title

    BAV

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    - Case A assumes a stable reinvestment rate of 50% of profits each year, leading to a growth rate of 10% and a net present value of the sixth year income of $2536.55. - Case B assumes a reinvestment rate of 50%, yielding a net present value of sixth year income of $1691.04. - Case C assumes a reinvestment rate of 40%, with a net present value of sixth year income of $1674.93. - Case D assumes a reinvestment rate of 0% and a net present value of sixth year income of $1674.93.

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    68 views14 pages

    Session 13

    Uploaded by

    Jamal Shahid
    - Case A assumes a stable reinvestment rate of 50% of profits each year, leading to a growth rate of 10% and a net present value of the sixth year income of $2536.55. - Case B assumes a reinvestment rate of 50%, yielding a net present value of sixth year income of $1691.04. - Case C assumes a reinvestment rate of 40%, with a net present value of sixth year income of $1674.93. - Case D assumes a reinvestment rate of 0% and a net present value of sixth year income of $1674.93.

    Copyright:

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    of 14

    BAV

    Session 13

    In long term RoE CoE


    In long term RoC CoC

    Two phase
    Three Phase

    reported profit

    100

    RoC

    20%

    CoC

    10%

    Reinvests

    50%

    Growth rate
    Stable Growth rate
    Stable reivestment rate

    10.0% 20%*50%
    5%
    25.00%

    Case A
    sixth year income
    Reinvestment

    169.1036
    25%

    Value from 6th year

    2536.553

    1
    110
    55

    Reported income
    income after reinvestment

    PV factors
    Total PV

    1.1
    50
    1825

    2
    121
    60.5

    1.21
    50

    3
    133.1
    66.55

    4
    5
    146.41 161.051
    73.205 80.5255

    1.331
    50

    2536.553
    1.4641 1.61051
    50
    1625

    Case B
    sixth year income

    169.1036

    Reinvestment
    Value from 6th year

    50%
    1691.036

    Reported income

    100

    income after reinvestment

    110

    121

    133.1

    146.41 161.051

    55

    60.5

    66.55

    73.205 80.5255
    1691.036

    PV factors
    Total PV

    1300

    1.1

    1.21

    1.331

    50

    50

    50

    1.4641 1.61051
    50

    1100

    Case C
    sixth year income

    167.493

    Reinvestment
    Value from 6th year

    40%
    1674.93

    Reported income

    100

    income after reinvestment

    110

    121

    133.1

    146.41 161.051

    55

    60.5

    66.55

    73.205 96.6306
    1674.93

    PV factors
    Total PV

    1300

    1.1

    1.21

    1.331

    50

    50

    50

    1.4641 1.61051
    50

    1100

    Case D
    sixth year income
    Reinvestment

    167.493
    0%

    Value from 6th year

    1674.93

    Reported income
    100
    income after reinvestment
    PV factors
    Total PV

    1300

    1
    110
    55

    2
    121
    60.5

    3
    133.1
    66.55

    1.1
    50

    1.21
    50

    1.331
    50

    4
    5
    146.41 161.051
    73.205 96.6306
    1674.93
    1.4641 1.61051
    50
    1100

    Dividend Discount Model


    Three phase dividend discount model
    RoE
    CoE
    Payout ratio

    DDM
    RoE
    DPS
    EPS
    Payout ratio
    Reinvestment
    Growth rate

    23.22%
    5.5
    33.27
    16.53%
    83.47%
    19.38%
    Growth

    Beta
    R free
    Mkt Premium
    CoE
    Growth rate
    Reinvestment

    Stable
    1.1
    6%
    7%
    13.70%

    1
    6%
    5.50%
    11.50%
    4%
    34.78%

    DDM

    Year

    0.44% CoE

    13.26% 12.82% 12.38% 11.94% 11.50%

    9.74% Payout ratio

    26.27% 36.01% 45.74% 55.48% 65.22%

    Growth
    3.08% Rate

    16.31% 13.23% 10.15%

    7.08%

    4.00%

    DDM
    year

    10

    11

    33.27

    39.72

    47.42

    56.60

    67.57

    80.67

    93.82

    106.24

    117.02

    125.30

    130.32

    135.53

    5.50

    6.57

    7.84

    9.36

    11.17

    13.33

    24.65

    38.25

    53.53

    69.52

    84.99

    Discounting factor

    0.88

    0.77

    0.68

    0.60

    0.53

    0.46

    0.41

    0.37

    0.33

    0.29

    PV of Dividend

    5.77

    6.06

    6.37

    6.68

    7.02

    11.45

    15.75

    19.62

    22.76

    24.95

    EPS
    Payout

    Terminal Value

    1178.53

    PV of terminal
    Value

    346.04

    Total Value of
    equity

    472.48

    FCFE
    Cost of equity
    beta

    R Free

    5%

    Mkt Premium

    4%

    CoE

    9.00%

    Stable period
    growth rate
    RoE
    equity reinvestment rate

    4%
    12%
    33.33%

    FCFE
    0

    1000

    1100

    1210

    1331

    1464.1

    1610.51

    100

    110

    121

    133.1

    146.41

    161.051

    capex

    75

    82.5

    90.75

    depreciation

    50

    55

    60.5

    66.55

    73.205

    80.5255

    NWC

    50

    55

    60.5

    66.55

    73.205

    80.5255

    5.5

    6.05

    6.655

    7.3205

    11

    12.1

    13.31

    14.641

    16.1051

    88.5

    97.35

    33

    36.3

    Revenue
    net income

    Change NWC

    Net Debt

    10

    FCFE
    Dividends

    30

    99.825 109.8075 120.7883

    107.085 117.7935 129.5729


    39.93

    43.923

    48.3153

    FCFE
    Value of equity at end of 6th
    Year
    NetIncome

    Equity Reinvestment rate

    167.49304 161.051*1.04

    33.33%

    CoE

    9%

    Growth rate

    4%

    Value

    2233.3522

    FCFE

    88.5

    97.35

    107.085 117.7935

    129.5729

    Terminal Value

    2233.352

    PV Value
    PV Value of equity

    1865.0065

    1.09

    1.1881

    1.295029 1.411582

    1.538624

    81.19266

    81.93755

    82.68927 83.44789

    1535.739

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