0 1 2 3 4 5 Written Down Value metho

Capex 450 BV(end)

NWC 150 200 187.5 162.5 200 0 0 450
Rev 600 800 750 650 800 1 337.5
Opex (FC + VC) 360 480 450 390 480 2 253.125
Depreciation 112.5 84.375 63.28125 47.46094 35.5957 3 189.8438
EBIT 127.5 235.625 236.7188 212.5391 284.4043 4 142.3828
Tax 38.25 70.6875 71.01563 63.76172 85.32129 5 106.7871
EBIAT 89.25 164.9375 165.7031 148.7773 199.083
OCF 201.75 249.3125 228.9844 196.2383 234.6787
"-"Capex 0 0 0 0 0
"-"Del NWC 50 -12.5 -25 37.5 -200
FCFF 151.75 261.8125 253.9844 158.7383 434.6787
Value ₹ 789.66 G 5%
CV 4278.869 W 15.67%
FCFF with CV 151.75 261.8125 253.9844 158.7383 4713.547
₹ 2,856.41
PV of CV ₹ 2,066.75 PV of CV is roughly 3 times the PV of intermittent CFs… be rest assured of scrutiny ….
Written Down Value method 25% Initital In 600 Equity Debt Tax
Dep BV(end) 400 200 30%
20% 10%
112.5 337.5 WACC 15.67%
84.375 253.125
63.28125 189.8438
47.46094 142.3828
35.5957 106.7871
26.69678 80.09033
 0 1 2 3 4 5 Written Down Value metho
Capex 450 BV(end)
NWC 150 200 187.5 162.5 200 210 0 450
Rev 600 800 750 650 800 840 1 337.5
Opex (FC + VC) 360 480 450 390 480 2 253.125
Depreciation 112.5 121.875 128.9063 134.1797 138.1348 3 189.8438
EBIT 127.5 198.125 171.0938 125.8203 181.8652 4 142.3828
Tax 38.25 59.4375 51.32813 37.74609 54.55957 5 106.7871
EBIAT 89.25 138.6875 119.7656 88.07422 127.3057
OCF 201.75 260.5625 248.6719 222.2539 265.4404
"-"Capex 150 150 150 150 150
"-"Del NWC 50 -12.5 -25 37.5 10
FCFF 1.75 123.0625 123.6719 34.75391 105.4404
PV of inter ₹ 243.76 G 5%
CV 1037.929 W 15.67%
FCFF with CV 1.75 123.0625 123.6719 34.75391 1143.37
Firm Value ₹ 745.09
PV of CV ₹ 501.33 PV of CV is roughly 3 times the PV of intermittent CFs… be rest assured of scrutiny ….
Value of Eq ₹ 545.09
Written Down Value method 25% Initital In 600 Equity Debt Tax
Dep BV(end) 400 200 30%
20% 10%
112.5 337.5 WACC 15.67%
84.375 253.125
63.28125 189.8438
47.46094 142.3828
35.5957 106.7871
26.69678 80.09033
 0 1 2 3 4 5 Written Down Value method
Capex 450 BV(end)
NWC 150 200 187.5 162.5 200 210 0 450
Rev 600 800 750 650 800 840 1 337.5
Opex (FC + VC) 360 480 450 390 480 2 253.125
Depreciation 112.5 121.875 128.9063 134.1797 138.1348 3 189.8438
EBIT 127.5 198.125 171.0938 125.8203 181.8652 4 142.3828
Interest 20 20 15 10 5 5 106.7871
EBT 107.5 178.125 156.0938 115.8203 176.8652
Tax 32.25 53.4375 46.82813 34.74609 53.05957
PAT 75.25 124.6875 109.2656 81.07422 123.8057
Cash Profits 187.75 246.5625 238.1719 215.2539 261.9404
Capex 150 150 150 150 150
Del NWC 50 -12.5 -25 37.5 10
Debt repaid 50 50 50 50
FCFE -12.25 59.0625 63.17188 -22.24609 51.94043
TV 363.583 g 5%
CFs withTV -12.25 59.0625 63.17188 -22.24609 415.5234
Value of Eq ₹ 223.63
PV of inter ₹ 77.51
PV of TV 146.1159
PVTV as % o 65.34%
NPV ₹ -176.37
Written Down Value method 25% Initital In 600 Equity Debt Tax
Dep BV(end) 400 200 30%
20% 10%
112.5 337.5 WACC 15.67%
84.375 253.125
63.28125 189.8438
47.46094 142.3828
35.5957 106.7871
26.69678 80.09033
 0 1 2 3 4 5
Capex 450
NWC 150 200 187.5 162.5 200 210
Rev 600 800 750 650 800 840
Opex (FC + VC) 360 480 450 390 480
Depreciation 112.5 121.875 128.90625 134.1797
138.1348
EBIT 127.5 198.125 171.09375 125.8203
181.8652
Interest 20 20 10 0 0
EBT 107.5 178.125 161.09375 125.8203
181.8652
Tax 32.25 53.4375 48.328125 37.74609
54.55957
PAT 75.25 124.6875 112.765625 88.07422
127.3057
Cash Profits 187.75 246.5625 241.671875 222.2539
265.4404
Capex 150 150 150 150 150
Del NWC 50 -12.5 -25 37.5 10
Debt repaid 100 100 0 0
FCFE -12.25 9.0625 16.671875 34.75391
105.4404
TV 948.9639 g
CFs withTV -12.25 9.0625 16.671875 34.75391 1054.404
Disc Factor 0.833 0.704 0.604 0.517 0.443
PV -10.208 6.382 10.064 17.981 467.604
Value of equity 491.823
Value of Equity ₹ 513.25
PV of intermittent CFs ₹ 64.87
PV of TV 381.3673
PVTV as % of total value 74.30%
NPV ₹ 113.25

BV of Debt 200 Firm

Value of Equity @ 20% 361.49 561.49 Undervaluation of equity because ke is kept unnecessarily high at 20%
Value of Equity @ 16.67% 513.25 713.25 Overvaluation of equity
Value of Equity at varying K 491.823 691.823
FCFF wala Value ₹ 745.09
 Written Down Value method 25% Initital In 600 Equity Debt Tax
BV(end) Dep BV(end) 400 200 30%
0 450 20% 10%
1 337.5 112.5 337.5 WACC 15.67%
2 253.125 84.375 253.125 Ka 16.67%
3 189.8438 63.28125 189.8438 Ke 18.33%
4 142.3828 47.46094 142.3828 Ke year 2 18.33%
5 106.7871 35.5957 106.7871
26.69678 80.09033

5%

ecessarily high at 20%

 Beg O/S Int paid (1 10%
1 200 20
2 200 20
3 150 15
4 100 10
5 50 5
 Capex BV (Beg) Dep
1 150 450 112.5
2 150 487.5 121.875
3 150 515.625 128.9063
4 150 536.7188 134.1797
5 150 552.5391 138.1348
Initial Investment 1500
All Equity 1 2 3 4 5 Ka
FCFF -112 6 151 314 495
TV 4812.5 g 5%
-112 6 151 314 5307.5
Unlevered value ₹ 2,728.49
NPV (Base case) ₹ 1,228.49
Scenario 1 Fin Rule 1 Debt 750 Kd 6.80% 6.800% Tax 40%
Value of ITS (Fin Rule 1) 300
Thus firm value following ₹ 3,028.49
NPv (my preference becaus₹ 1,528.49

Scenario 2 Fin rule 2 D/V 25% WACC 15.12% wd 25%

We 75%
Fin Rule 2 1 2 3 4 5
FCFF -112 6 151 314 495
TV 5135.87 g 5%
-112 6 151 314 5630.87
Firm Value ₹ 2,969.97
Value of ITS (Fin Rule 2) ₹ 241.49

Verification End of year 2002 Beg 2003Beg 2004 Beg

1 2002 -112 0.868659 -97.28978
2 2003 6 0.754568 4.527409 0.868659 5.211953
3 2004 151 0.655462 98.97479 0.754568 113.9398 0.868659 131.1675
4 2005 314 0.569373 178.7831 0.655462 205.8151 0.754568 236.9344
5 2006 5630.87 0.494591 2784.977 0.569373 3206.065 0.655462 3690.822
Firm Value 2969.972 3531.032 4058.924
Debt 742.4931 882.758 1014.731
Interest 50.48953 60.02754 69.00171
ITS 20.19581 24.01102 27.60068

Value of ITS 1 2 3 4 5
2002 2003 2004 2005 2006
ITS 20.1958111 24.01102 27.60068 30.74711 33.26087
TV of ITS 323.3696
₹ 20.20 ₹ 24.01 ₹ 27.60 ₹ 30.75 ₹ 356.63
Value of ITS ₹ 241.49
₹ 2,969.97
 15.800% Rf 5%
Rm-Rf 7.20%
Ba 1.5
Bd 0.25

Kd 6.800% Be 1.916667
Ke 18.800% Ke 18.800%

2005 Beg 2006 Beg

0.868659 272.7589
0.754568 4248.875 0.868659 4891.304
4521.633 4891.304
1130.408 1222.826
76.86777 83.15217
30.74711 33.26087