Case 16.

2: Sunlight Paints Limited

Assumptions:
Tax rate 35% Year 2004 2005 2006 2007
Equity beta 1.05 Working Capital 67.00 70.81 78.72 98.40
D/E ratio (1:5) 0.20 Capex* 75.00 50.00 20.60 18.80
E/V ratio 83.33% * It is assumed that capex is incurred in the beginning of the current year and therefore, treated as at the end of the previous
D/V ratio 16.67% in year 14 is assumed equal to depreciation.
Cost of equity 18.00% 2004.00 2005.00 2006.00 2007.00
Cost of debt 8.10% Sales 202.30 224.91 281.14
Pre-tax WACC (OCC) 16.35% Cash expenses 161.27 173.70 204.63
Interest (A) 20.13 20.13 20.13
Risk-free rate 7.50% Depreciation (B) 135.92 105.20 77.72
Risk premium 10.00% Profit after tax( C ) 26.67 33.29 49.73
Unlevered beta 0.88 Change in NWC (D) -3.81 -7.91 -19.68
Capex (E) -75.00 -50.00 -20.60 -18.80
New debt 125.00 After-tax cash flows, F = B+C+D+E -75.00 108.78 109.98 88.97
Interest rate 8.10% Add: After-tax Interest (G) 13.08 13.08 13.08
Existing debt 100.00 Unlevered (or free) cash flow, H = F+G -75.00 121.86 123.06 102.05
Market interest rate (BTCOD) 8.10% SV
ATCOD 5.27% NCF 121.86 123.06 102.05
Value 774.20
PV of Interest tax shield 47.05 7.04 7.04 7.04
Total value 821.25
Less: Value of debt 225.00
Equity value 596.25
Value per share 23.85

Loam Amortisation and Interest

2004 2005 2006 2007
New debt 125 125 125 125
Repayment 0.00 0.00 0.00
Interest 10.13 10.13 10.13
Existing debt 100 100 100 100
Repayment 0 0 0
Interest 10 10 10
Total interest 20.13 20.13 20.13

Capital Cash Flow Approac (vs. ANPV Approach)

ANPV Dis. Rate CCF Dis. Rate

Value 774.2 16.35% 774.2 16.35%
PV of Interest 47.1 8.10% 33.61 16.35%
Total value 821.3 807.8
Less: Value of debt 225 225
Equity value 596.3 582.8
Value per share 23.9 23.3
 2008 2009 2010 2011 2012 2013 2014
117.09 130.18 144.28 151.50 159.07 167.03 175.38
18.00 16.60 15.00 16.20 13.20 13.50 12.15
herefore, treated as at the end of the previous year. Capex

2008.00 2009.00 2010.00 2011.00 2012.00 2013.00 2014.00

334.55 386.07 443.99 497.26 546.99 601.69 649.83
234.00 262.34 294.19 323.50 350.84 380.93 407.40
20.13 20.13 20.13 20.13 20.13 20.13 20.13
59.63 44.72 34.29 26.05 20.10 15.52 12.15
65.36 80.42 97.37 112.94 127.50 143.49 157.58
-18.69 -13.09 -14.10 -7.22 -7.57 -7.96 -8.35
-18.00 -16.60 -15.00 -16.20 -13.20 -13.50 -12.15
88.30 95.45 102.56 115.57 126.83 137.55 149.23
13.08 13.08 13.08 13.08 13.08 13.08 13.08
101.38 108.54 115.64 128.66 139.91 150.64 162.31
1252.29 Discount rate
101.38 108.54 115.64 128.66 139.91 150.64 1414.60 OCC, 16.35%

7.04 7.04 7.04 7.04 7.04 7.04 7.04 BTCOD, 10%

2008 2009 2010 2011 2012 2013 2014

125 125 125 125 125 125 125
0.00 0.00 0.00 0.00 0.00 0.00 125.00
10.13 10.13 10.13 10.13 10.13 10.13 10.13
100 100 100 100 100 100 0
0 0 0 0 0 0 100
10 10 10 10 10 10 10
20.13 20.13 20.13 20.13 20.13 20.13 20.13