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Emerging Leaders Program - Manufacturing Business & Project Finance

Facilitator: Prof Kousik Guhathakurta

Caselet 1 Chota Bachcha’s Free Idea Chhota Bachcha, the ever promising Indian film star, son of Indian Film Supernova Big Bachcha and Tiny Bachcha, wants to shift to business !ndaunted by the infinite failures of his father in this direction"# $e decides to float a consultancy firm called Free Idea# $e initially gathers some data from his friends all e%pert failures as businessmen"# The summary of his initial findings are as follows& Initial Capital 'e(uirement) ,apa’s -uarantee" ` 1** m To be provided by Ban+ on

.et 'evenue Schedule in ` million /r 1 0 5 2 1 5 2 2 5 2 3 1* 5 4 1* 5 5 -row at 36 -row at 36

'evenue 3 Cost 4

7a%imum Interest rate from Ban+) 11#36 Based on this he has to come to a decision#

Any resemblance to any real personality, either living or dead is purely coincidental

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ne Ban+ agreed to provide 036 of the fund <10#36 per annum# Then he remembered one of his films. his .Manufacturing Business & Project Finance Facilitator: Prof Kousik Guhathakurta Caselet 0 From 8here to get money9 Chota Bachcha got a shoc+ when he actually went to mar+et for his funds# First. either living or dead is purely coincidental Page 2 . =>ada?.apa refused to stand -uarantee for such a large amount .apa’s Boy got a rude shoc+"# But Tiny Bachcha stepped in with some of her :ewellery as collateral# .Emerging Leaders Program . where he played a business tycoon some said he really acted well@" who always went to public to help him out in times of despair# So he decided to go public# $e had two choices) 'aise further 036 through debentures# $is >ebentures will be rated BBB and fetch a cost of >ebt of 116 and the rest through e(uity# Alternatively he can raise the entire capital through e(uity# The unlevered Beta of similar business is 1#3# The treasury bonds are giving 4#36 per annum yield# The average mar+et premium is about 56# Chota Bachcha is now in a dilemma from where he is going to fetch his money# The present corporate ta% rates are to be considered# Any resemblance to any real personality.

either living or dead is purely coincidental Page 3 .Manufacturing Business & Project Finance Facilitator: Prof Kousik Guhathakurta Caselet 1 Buy Buy Business Chota Bachcha to everybody’s surprise and his friend 'ic+'ic+ Seshan’s dismay" is carrying on with his business (uite well and is into his 3th year of business# But now he is tired of his business and decides to go bac+ to his stardom days was there any9 8ell he thin+s there was"# $e now decides to put his business on sale# $e wishes to value his business# $e is confronted with the following details) Ad:usted BBIT 1Ct" Capital investment >epreciation . will he be able to sell9 Any resemblance to any real personality.Emerging Leaders Program .et Change in 8C ` 1#D3*m ` 0#313m ` 0#*13m ` #413m The business is e%pected to grow at 4#36 for the ne%t ten years after which it will stabilise at that level# The 'eCinvestment rate is going to remain same# Cost of capital depends on the capital structure he chose earlier# If he puts up price tag of ` 3** m.