Two stage

growth Model

Value of the Frm=Present Value of the FCf during
the high growth phase+present value of the terminal
value

Base year
Informatio
n
Revenues
EBIT 8% of
revenures
Capex
Depn
WC as a % of
Revenues
Corporate tax
rate
Paid up equity
Capital
Market value of
Debt

Rs in Mn
4000
500
300
200
30%
40%
300

1250

Input for
High
Growth
Period
Length of
Growth phase
g for
Revenues,depn,EBI
T,and capex

5

10%

1200

1320

120

WC as % of
Revenues
cost of Debt
D=1,E=1
Risk free Rate

30%
15 %pre
tax
31-Dec
13%

Input for stable
Growth Period

Years

1
4400
550

2
4840
605

330

363

Sub.
(Capex4 Depn)
WC

110
1320

121
1452

change
5 in WC
6 FCF

120
100

132
110

1 Revenues
2 EBIT
Nopat=E
3 BIT(1-t)

High Growth Period=

Stable Growth Period =

Re=Rf+b(Rm-Rf)
0.21

19%

Now,Present Value of Terminal Value
(FCFF6/(WAAC-g))*PV
=
of 5th

Therefore ,Value of the firm =

Pv of FCF+PVof
Terminal value

ue of the terminal

0

Market Risk
Premium
Equity Beta

6%
1.33

expected g for
Revenues,depn,
EBIT,and capex
6%
WC as % of
Revenues
30%
cost of Debt
15 %pre tax
D=2,E=3
Risk free Rate
12%
Market Risk
Premium
7%
Equity Beta
1.0

1200

3
5324
665.5

4
5 Terminal Year
5856.4
###
###
732.05 805.26 853.57

399.3

439.23 483.15 512.14

133.1
1597.2
145.2
121

146.41 1932.6
161.05
1756.92
1

7

###

159.72 175.69 115.96
133.1 146.41 396.19

$398.58

Re=Rf+b(Rm-Rf)

WAAC= Re*We+Wd*Rd(1-t)
0.15
15%

21.00%

19.00%

6/(WAAC-g))*PV of 5th Year
4402.06

0.15

2188.6

$2,587.19

15%

Revenues=
EBIT=
Capex=
Depn=
WC@ 20%
t=
Growth Phase0-5 Years
revenues,de
pn,EBIt,Cape
x are
increasing
WC @20%
Cost of Debt
D:E
Rf
Rm-Rf
Beta
WACC=

Rs 1000 Mn
Rs250 Mn
Rs 295
Rs.240
40%

5 Years

25%

25.00%

15%
1.5
12%
6%
1.58
14 14.00% WAAC=Ke*We+Kd*Wd

5-10 Years
From 510Years
growth Rate
rate is
declinig by
Transition Phase
3% per Year
WC
20% of Revenues
D:E 1:1
Pretax cost of Debt
14%
Rf
11%
Rm-Rf
6%
Equity Beta
0.5
WAAC
13 13.00%

Stable

Revenues,E
BIT,Capex,D
epn

10%

0.10

WC
D=0,E=1
Pretax cost of Debt
Rf
Rm-Rf
Equity Beta
WAAC

20%
12%
10%
6%
0.1
0.16

16%

2.7

1.7

99.97
250

Period

Growth Rate EBIT(1-t)Capex
1
25% 187.5
368.75
2
25% 234.38
460.94
3
25% 292.97
576.17
4
25% 366.21
720.21
5
25% 457.76
900.27
6
22% 558.47
1098.33
7
19% 664.58
1307.01
8
16% 770.91
1516.13
9
13% 871.13
1713.23
10
10% 958.25
1884.55

NOW,

Terminal Value=

FCFF11/(WAAC-g)

Present Value of Terminal Value

There fore value of the Firm
Present value of the firm in Growth Per
Present value of the firm in transition P
Present Value of Terminal value

Value of the firm

C=Ke*We+Kd*Wd

824.33

Dep

change in
Wc

WC
300
375
468.75
585.94
732.42
893.55
1063.33
1233.46
1393.81
1533.19

FCFF11=

250
312.5
390.63
488.28
610.35
744.63
886.11
1027.89
1161.51
1277.66

50
62.5
78.13
97.66
122.07
134.28
141.48
141.78
133.63
116.15

539.81

1/(WAAC-g)

8996.87
2241.3

e value of the Firm
of the firm in Growth Period
of the firm in transition Period
of Terminal value

8607.34

365.62
610.73
2241.3

FCFF

D/E
68.75
85.94
107.42
134.28
167.85
219.42
279.42
346.47
418.09
490.74

494.6

ß
1.5
1.5
1.5
1.5
1.5
1.0
1.0
1.0
1.0
1.0

1.58
1.58
1.58
1.58
1.58
1.10
1.10
1.10
1.10
1.10

3217.64

100.74
22.01

WAAC
PV
14.00%
14.00%
14.00%
14.00%
14.00%
13.00%
13.00%
13.00%
13.00%
13.00%

60.31
66.13
72.51
79.5
87.17
100.85
113.65
124.71
133.18
138.34

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