Corporate Bridge Academy DCF APPLICATION – ASIAN PAINTS

1.1
I. II.

STEP 1: CALCULATE FREE CASH FLOWS
Reference Net Income from Income Statement Add back non-cash expenses Depreciation Amortization Stock-based compensation Add back interest, as we are calculating the cash flows to the firm i.e. Debt-holders as well as Equity-holders not just the Equity-holders. Substract the projected Capital Expenditure required, as that amount would not be available to shareholders and would be used to fuel the growth of the company Also include the changes in working capital a. Substract the amount if there is an increase, as that additional amount would be blocked in working capital b. Add the amount if there is a decrease as compared to previous year, as that amount is freed out of working capital cycle and is available to shareholders.

III. IV. V.

Add them all to arrive at Free cash flow available to firm

After tax Interest Expense has not been projected as Google has no long-term debt

info@educorporatebridge.com

Page 1

2 I. Take a value for beta 8.com Page 2 .0% Taken as per Indian markets c. Assume a risk-free rate and market Premium Valuation Assumptions Terminal growth rate Cost of debt Beta Risk free rate (rf ) Market Premium Cost of Equity b.0% 5. STEP 2: CALCULATE WACC Apply CAPM to calculate the cost of Equity a.Corporate Bridge Training 1. Calculate the Cost of Equity Consensus Beta taken from Reuters Apply CAPM Model to calculate the cost of Equity info@educorporatebridge.

0% 10.35% Cost of Debt assumed at 10% Calculate Weighed Average Cost of Capital (WACC) a. Estimate the cost of Debt Valuation Assumptions Terminal growth rate Cost of debt Beta Risk free rate (rf ) Market Premium Cost of Equity III.0% 5. Take the weighted average summation of cost of debt and cost of equity to calculate WACC Debt and equity amount taken from Balance Sheet Take the weighted average of the cost of debt and cost of equity to calculate WACC info@educorporatebridge.Corporate Bridge Training II.0% 0.com Page 3 .5 8. 10.

com Page 4 .Corporate Bridge Training 1.3 ESTIMATE TERMINAL VALUE Terminal Growth rate assumed at 6% Terminal Value info@educorporatebridge.

com Page 5 .6 ARRIVE AT THE ENTERPRISE VALUE Enterprise Value info@educorporatebridge.4 STEP 4: DISCOUNT THE FREE CASH FLOWS Use XNPV to calculate the Present Value 1.5 STEP 5: DISCOUNT THE TERMINAL VALUE TO PRESENT 1.Corporate Bridge Training 1.

II.com Page 6 .7 I. STEP 7: ADJUST ENTERPRISE VALUE TO ARRIVE AT EQUITY VALUE Substract: Debt Substract: Minority interest Add: Cash and cash equivalents Equity Value 1. III.Corporate Bridge Training 1.8 STEP 8: CALCULATE THE FAIR VALUE Asian Paints fair Price as per CB Research info@educorporatebridge.

Sign up to vote on this title
UsefulNot useful