Assumptions

Estimate of Cost of Equity

ROE-1972 11.5% D1 5.18
Retention-1972 32% Current price 143.75
Sustainable Growth 3.66% Div. Yield 3.61%
D0 5 Cost of Equity 7.3%
1972 1973 1974 1975 1976

Information as given in Ex.4

Market size ('000 t) 752 774 798 822
Market share (%):
Maintain 35% 40% 45% 45%
Growth 35% 40% 47% 47%
Selling price ($ per tonne)
Maintain 555 665 760 890
Growth 540 640 750 880
Operating costs ($ /ton) 330 390 460 540
Capacity (000 t):
Maintain 325 340 350 360 370
Growth 325 350 375 400 421
Capacity cost ($/t) 873.79 900 927 955 983

Maintain - Status Quo

1972 1973 1974 1975 1976
Operational Profit
Sales (000 tons) Mkt. x share 263.20 309.6 359.1 369.9
Incr. sales (000 tons) Qty > 325 k tons 0.0 0 34.1 44.9
Incr. sales ($ millions) delta qty x price /1000 0.0 0.0 25.9 40.0
Incr. opex ($ millions) delta qty x opex /1000 0.0 0.0 15.7 24.2
Incr. EBIT Delta sales - opex 0.0 0.0 10.2 15.7
Incr. EBIT (1-Tax)+ITC Incr. EBIT (1-48%) 1.3 0.9 0.9 6.3 9.3
Estimation of delta FCF - Investment in NWC and Cap. Ex., Terminal Value

NWC 20% of sales value 0.0 0.00 5.18 7.99

delta NWC Difference 0.0 0.00 5.18 2.81
Capex delta cap. X cost 13.1 9.0 9.3 9.6 10.8

Reovery - capex Total investment

Recovery NWC 1985 NWC
Incr. FCF (11.80) (8.10) (8.34) (8.46) (4.37)

Growth - Status quo

1972 1973 1974 1975 1976
Operational Profit
Sales (000 tons) Mkt. x share 263.20 309.6 375.1 386.3
Incr. sales (000 tons) Qty > 325 tons 0.00 0 50.1 61.3
Delta sales ($ million)
Old capacity Upto 325 tns price diff (Growth (3.95) (7.74) (3.25) (3.25)
New capacity >325 tons, incr. sale (q)xprice 0.00 0.0 37.5 54.0
Total delta sales ($ million) (3.95) (7.7) 34.3 50.7

Delta opex ($ million) Delta qty x opex/ton 0.00 0.0 23.0 33.1
Incr. EBIT Total delta sales - delta opex (3.95) (7.7) 11.3 17.6
Incr. EBIT (1-Tax)+ITC Incr. EBIT (1-48%) 2.18 0.20 (1.71) 7.86 11.32

Estimation of delta FCF - Investment in NWC and Cap. Ex., Terminal Value

NWC ($ millions) 20% of sales value (0.79) (1.55) 6.86 10.15

Incr. NWC Difference (0.79) (0.76) 8.41 3.29
Capex delta cap. X cost 21.84 22.50 23.18 20.06 21.63

Recovery capex Total investment

Recovery NWC 1985 NWC
Incr. FCF ($ million) (19.66) (21.51) (24.12) (20.60) (13.60)

Growth-Maintain -7.86 -13.41 -15.78 -12.14 -9.23

Maintain Growth G-M

IRR 19.8% 19.0% 18.4%
NPV 87.99 200.09 112.1
Tax rate 48%
NWC/Sales 20%
Investment TC 10%

1977 1978 1979 1980 1981 1982 1983 1984 1985

846 872 898 925 952 981 1010 1041 1072

45% 45% 45% 45% 45% 45% 45% 45% 45%

51% 52% 52% 55% 58% 59% 61% 62% 64%

955 1015 1070 1120 1170 1210 1270 1320 1370

950 1010 1070 1130 1190 1250 1310 1370 1430
580 620 660 690 710 740 770 810 850

381 392 404 416 428 441 455 468 482

443 475 505 530 552 579 616 645 685
1013 1043 1075 1107 1140 1174 1210 1246 1283

1977 1978 1979 1980 1981 1982 1983 1984 1985

380.7 392.4 404.1 416.3 428.4 441.5 454.5 468.5 482.4

55.7 67.4 79.1 91.3 103.4 116.5 129.5 143.5 157.4
53.2 68.4 84.6 102.2 121.0 140.9 164.5 189.4 215.6
32.3 41.8 52.2 63.0 73.4 86.2 99.7 116.2 133.8
20.9 26.6 32.4 39.2 47.6 54.7 64.8 73.2 81.8
12.0 15.1 18.2 21.7 26.2 30.1 35.2 39.8 42.6

10.64 13.68 16.93 20.44 24.20 28.18 32.89 37.87 43.13

2.65 3.04 3.25 3.51 3.76 3.99 4.71 4.98 5.26
11.1 12.5 12.9 13.3 14.8 16.4 15.7 17.4 0.00

166.01
43.13
(1.81) (0.46) 2.01 4.94 7.64 9.68 14.80 17.37 246.44

1977 1978 1979 1980 1981 1982 1983 1984 1985

431.5 453.4 467.0 508.8 552.2 578.8 616.1 645.4 686.1

106.5 128.4 142.0 183.8 227.2 253.8 291.1 320.4 361.1

(1.63) (1.63) 0.00 3.25 6.50 13.00 13.00 16.25 19.50

101.1 129.7 151.9 207.6 270.3 317.2 381.3 439.0 516.3
 99.5 128.1 151.9 210.9 276.8 330.2 394.3 455.2 535.8

61.7 79.6 93.7 126.8 161.3 187.8 224.1 259.5 306.9

37.8 48.5 58.2 84.1 115.5 142.4 170.2 195.7 228.9
22.88 28.33 32.95 46.17 63.16 78.41 92.01 106.74 119.04

19.90 25.62 30.38 42.18 55.36 66.05 78.87 91.05 107.17

9.76 5.72 4.76 11.80 13.19 10.68 12.82 12.18 16.12
32.42 31.29 26.88 24.35 30.78 43.44 35.09 49.84 0.00

383.28
107.17
(19.29) (8.68) 1.32 10.02 19.19 24.29 44.10 44.72 593.37

-17.48 -8.21 -0.69 5.08 11.55 14.60 29.30 27.36 346.93