Valuation Fundamental

Case -1 [10 marks]

Following are the details of an IT Company's revenue for the past 3 years - Year-1 = 11000, Year-2 =
13500, Year-3=16000, million INR
35% of the revenue comes from onsite and remaining from offshore
The number of employees working onsite is 15% of the total employee strength every year
The employee count for the company each year is 5000, 6000 and 7000
The onsite utilisation is 85%, 85% and 85% in the respective years
The offshore utilisation has been 2000 bps lower than onsite
Assuming that the onsite and offshore billing rates per hour increase at 2% per year, project the
revenues for the next 3 years
Assume 250 working days per year and 8 hours of working for every day
Company expects to add 500 employees every year.
15% of the total employees would be onsite, others offshore
Utiilisation rates are expected to remain constant, for both onsite and offshore as that in year-3
What is the revenue for Year-6?

Case -2 [5 marks]
A company has a D/E of 1.25. As per the balance sheet, the outstanding debt is
Rs.10000 bearing an interest rate of 10%
The cash and cash equivalent is Rs.1250
The net income of the company is Rs.1600 and the tax rate is 30%
The depreciation and amortization amount is Rs.500.
Calculate the EV/EBITDA of the company.
Consider the book value of equity same as the market value of equity of the company.

Case -3 [2marks]
Calculate the ROE of the company with the use of following information: EBIT = Rs.4000, Tax rate =
35%, Interest rate = 15%, Outstanding debt = Rs.10000, Equity value = Rs.20000.

Case – 4 [10 marks]

 NOD Co a franchise of Dr. Reddyy pharmacy, sells 250 strips/day of low budget drugs at an average
contribution of Rs.40/ strip and 150 strips/day of high budget drugs at an average contribution of Rs.70/
strip
Sales volume and average price are expected to grow by 5% every year for both the drugs
To operate a franchise , it needs to have a 1250 sqft space for retail shop with a lease rental of Rs.175
/ sqft / month (rental contract for 5 years, deposit of Rs.15,00,000 at the start)
A one time renovation of the premises worth Rs.30,00,000 will need to be incurred at the start.
Required personnel costs are Rs 125,000/month
Wage inflation in the economy is 8%. Other operational expenses are expected to be 30% of the
contribution, generated for the period
Tax rate in the economy is 35%. Tax losses cannot be carried forward
The initial investment (deposit + renovation) can be funded by 60% bank loan (@13% interest rate).
The remaining should be funded using equity. The debt is to be repaid at the end of 5 years in lump
sum
Other investment opportunity with NOD Co. is expected to provide a return of 25%
Evaluate the business opportunity with a project life of 5 years
After 5 years the franchise will be handed over to Dr. Reddyy and the deposit will be refunded to the
NOD Co.(Ignore depreciation) If NOD Co. invests in the project, what is the expected IRR?

Case -5 [10 marks]

Following are the details of revenues from 2 segments for a company

Segment-1: Year-1 = 2700, Year-2 = 3500, Year-3 = 4700
Segment-2: Year-1 = 1200, Year-2 = 1400, Year-3 = 1800
Both segments have worked at a gross margin of 25% for segment-1 and 10% for segment-2 for all the
3 years
The selling and administration expenses have remained at 20% of the revenues for each year
The company additionally has a debt of 3400 since Year-1 to Year-3, which has an interest rate of 9%
Debt will be repaid at the end of 5 years. Company has fixed assets of 5500 for all 3 years
These were depreciated at 5% each year and new assets worth the same amount were added each
year
The tax rate for the company is 35%.Complete the Income statement of the company based on the
given data and Compute the Net Profit for the year-3
Don't assume any interest income.
Tax losses if any, are not carried forward.

Case -6 [10marks]

Current cash flow details of the company are as provided

Use these assumptions to estimate the FCFE for current period
Project the cash flows based on a 2 stage FCFE model and compute the Intrinsic Value per share as
per the FCFE model
 Current period should not be considered for the valuation purpose
EBITDA for the company is 1500
Company has charged a depreciation of 300 in the current year
Company has a debt of 1500 at 10% interest rate. The tax rate of the company is 20%
During the year the company added new machinery worth 100 and working capital reduced by 50
Debt raised during the year was 150 and repaid was 275
Cost of equity for the company is 20%
Number of shares with the company are 500
The company's FCFE is expected to increase by 15% for the next 5 years and then expeecteed to
remain constant at 5% forever

Case -7 [10 marks]

17. Following is the selected financial data of a Services Company provided to the analyst
Year - 1 (Y1) is actual data and year-2 (Y2) and year-3 (Y3) are projections
Income Statement forecast details are as follows: Revenue Projection : Y1 = 9000, Y2=10000, Y3 =
11000
COGS Projection Y1 = 6000, Y2 = 7250 , Y3 = 8900
Depreciation : Y1 = 700, Y2 = 800, Y3 = 900 ; Tax : Y1 = 500, Y-2 = 650, Y-3=700
No other item is present in the Income Statement
Balance Sheet forecast details are as follows: Cash : Y1 = 4800, Y2 = 5309.7, Y3 = 5019.4, Accounts
receivable : Y1 = 2500, Inventory : Y1 = 3000, PPE, Net : Y1 = 9000, Accounts payable : Y1 = 1500,
Debt : Y1 = 7500,Y2 = 7500, Y3 = 7500, Equity : Y1 = 7500, Y2= 7500, Y3=7500, Retained earnings :
Y1 = 2800
No other line items are present in the blanace sheet
DSO, DOH and Payable days are expected to remain the same for all the projection years as that of
year-1
Every year the company is going to add 1000 of new capex
Assume new capex gets added at the start of the year and its depreciation is considered in the above
given values
What is the total Liabilities and Shareholders' Equity for the Year - 3?

Case -8 [ 10 marks]

Current cash flow details of the company are as provided

Use these assumptions to estimate the FCFF for current period. Project the cash flows based on a 3
stage FCFF model and compute the Intrisic Value per share as per the FCFF model
Current period should not be considered for the valuation purpose
Net Income for the company is 550, Tax rate is 35% and there is a debt on the books of the company
worth 5000 at 8% interest rate
Depreciation charged during the current period is 125 and the capex done by the company is 225
Working capital decreased by 50 during the current year
No additional borrowings or repayment was done by the company
The company's total shareholders' equity is 12000 and the cost of equity is 15%
Company's FCFF is expected to grow at 10% for the next 3 years, then linearly decline to 5% in the
next 5 years and remain costant at 5% forever
Company is not having any cash on its books
Number of shares with the company are 500.

Case -9 [10 marks]

Given below are the details of Income Statement and Balance sheet of a company.
Compute Ending cash balance for the company
Income Statement Details: Revenue =1050, COGS = 600, SG&A is 15% of Revenues,
Depreciation=50, Debt=500 and interest rate is 10%, Tax Rate is 30%
Balance Sheet Details: PPE, Gross = 2000, Accumulated Depreciation=1250, Capex done by the
company = 99.75, Current Assets = 750 , Decrease in current assets = 240.
Equity = 100, Retained Earning = 1500, Current Liabilities = 250, Increase in current liabilities=25
The company started the year with cash=0. Debt and equity has remained unchanged throughout the
year.