Ch.

35: Shareholder Value & Corporate Governance

Problem 1

Net margin 57.8%

Leverage 1.68
Retention ratio 30%
Assets/sales 2.01
Sustainable growth 16.9%

Problem 2

Growth 15%
ROI 16%
Interest rate 7%

Target growth 18%

Payout 60%
Retention 40%
Required D/E 3.22

Problem 3
(Rs crore)
PAT 123
Interest 24
Tax rate 35%
Invested capital (IC) 1340
WACC 15%
EBIT (1-T) = PAT + INT(1 - T) 139
Capital charges = WACC × IC 201
EVA -62

Problem 4

2003 2002 2001 2000

(A) Risk-free rate 6% 7.30% 10.30% 10.45%
(B) Risk premium 7% 7% 7% 8%
(C) Beta 1.57 1.41 1.54 1.48
(D) Cost of equity 17.0% 17.2% 21.1% 22.3%

(E) Capital employed (Rs crore) 2,470.48 1,734.97 1,111.47 703.87

(F) Enterprise value (Rs crore) 25,208.82 23,627.37 26,348.61 58,829.80
(G) MVA, (E - F) (Rs crore) 22,738.34 21,892.40 25,237.14 58,125.93

(H) PBT 1158.93 943.39 696.03 325.65

(I) Tax 201 135.43 72.71 39.7
(J) PAT, (H - I) 957.93 807.96 623.32 285.95
(K) Capital charges, (D ×E), (Rs crore) 419.73 297.89 234.30 156.89
(L) EVA, (J - K), (Rs crore) 538.20 510.07 389.02 129.06

(M) M/B, (F/E) 10.20 13.62 23.71 83.58

(N) ROE, %, (J/E) 38.8% 46.6% 56.1% 40.6%

(O) Economic return (L/E or N - D) 21.8% 29.4% 35.0% 18.3%
 1999
12%
8%
1.48
23.8%

245.42
9,256.14
9,010.72

155.86
22.94
132.92
58.51
74.41

37.72

54.2%
30.3%