Exhibit 3.

2
Balance Sheet of Horizon Limited as on March 31, 20X1
A. Account Form
(Rs. in million)
------------------------------------ ----------------- --------------- --------------- ----------------------------- --------------- -------------Liabilities
20X1
20X0
Assets
20X1
20X0
------------------------------------ ----------------- --------------- --------------- ----------------------------- --------------- -------------Share Capital
150
150 Fixed Assets
330
322
* Equity
150
* Preference
0
Reserves and surplus
112
106 Investments
24
10
Secured Loans
143
131 Current Assets,
234
156
Loans & advances
Unsecured Loans
69
25 Miscellaneous
Deferred tax liability
14
Exp. and losses
5
5
Current Liabilities
105
81
and provisions
--------------- ----------------------------- -------------593
493
593
493
------------------------------------ ----------------- --------------- --------------- ----------------------------- --------------- -------------B. Report Form
------------------------------------ ----------------- --------------- --------------- ----------------------------- --------------- -------------20X1
20X0
------------------------------------ ----------------- --------------- --------------- ----------------------------- --------------- -------------I. Sources of funds
(1) Shareholders' funds
262
256
(a) Share Capital
150
(b)Reserves and surplus
112
--------------(2) Loan funds
212
156
(a) Secured Loans
143
(b) Unsecured Loans
69
----------------------------- -------------(3) Deferred tax liability
141414141414141414
488
412
II. Application of funds
(1) Fixed Assets
330
322
(2) Investments
24
10
(3) Current assets, loans and advances
234
156
--------------- -------------(4) Miscellaneous expenditures and losses
555555555 55555555
593
493
Less:Current liabilities & provisions
105
81
--------------- -------------Net current assets
488
412
--------------- -------------488
412
------------------------------------ ----------------- --------------- --------------- ----------------------------- --------------- -------------Exhibit 3.3
Balance Sheet of Horizon Limited as on March 31, 20X1
A Detailed Version
(Rs. in million)

------------------------------------ ----------------- --------------- --------------- ----------------------------- --------------Liabilities

20X1
20X0
Assets
20X1
------------------------------------ ----------------- --------------- --------------- ----------------------------- --------------Share capital
150
150
Fixed assets
Equity
150
150
(net)
330
Preference
Gross block
500
Reserves & surplus
112
106
Acc. depn
170
Secured loans
143
131
Investments
24
Term loans
70
58
Current assets,
234
Cash credit
73
73
loans &
Unsecured loans
69
25
advances
Bank credit
25
25
Cash & bank
10
Inter-corporate
44
0
Debtors
114
deposit
Inventories
105
Deferred tax liability
14
Advances
5
Current liabilities &
provisions
105
81
Misc. exp.
5
Trade credit
75
60
& losses
Advances
20
13
Provisions
10
8
----------------- ----------------------------593
493
593
------------------------------------ ----------------- --------------- --------------- ----------------------------- --------------Exhibit 3.4
Profit and Loss Account of Horizon Limited for the
Year Ending on March 31, 20X1 (Rs. in million)
------------------------------------ ----------------- --------------- --------------- ----------------------------- --------------Income
Sales
701
Expenditure
Material and other expenditure
Interest
Depreciation
Profit before tax
Provision for tax
Profit after tax
Prior period adjustments
Amount available for approprition
Appropriations
Balance carried forward

8
42
35
7

-------------20X0
-------------322
462
140
10
156

6
68
72
10
5

-------------493
--------------

--------------

582
21
30
68
34
34
7
49
40
9

------------------------------------ ----------------- --------------- --------------- ----------------------------- --------------- -------------Exhibit 3.5

Profit and Loss Account of Horizon Limited for the
Year Ending on March 31, 20X1 (Rs. in million)
------------------------------------ ----------------- --------------- --------------- ----------------------------- --------------- -------------20X 1
20X 0
------------------------------------ ----------------- --------------- --------------- ----------------------------- --------------- -------------Net Sales
701
623
Cost of goods sold
552
475

Stocks
Wages and salaries
Other manufacturing expenses

421
68
63
---------------

Gross profit
Operating expenses
Depreciation
General administration
Seling

149
60

148
49

89
0
89
21
68
34
34
8
42
35
7

99
6
105
22
83
41
42
7
49
40
9

30
12
18
---------------

Operating profit
Non-operating surplus/deficit
Earnings before interest and tax
Interest
Profit before tax
Tax
Profit after tax
Prior period adjustments
Amount available for approprition
Appropriations
Balance carried forward

------------------------------------ ----------------- --------------- --------------- ----------------------------- --------------- -------------Exhibit 3.6

Changes in Balance Sheet Items
Part A. Changes in Balance Sheet Items
Mar 31
20X1
Owners Equity and Liabilities
Share Capital
Equity Capital
Preference Capital
Reserves and Surplus
Secured Loans
Term Loans
Cash Credit
Unsecured Loans
Bank Credit

Mar 31
20X0

Increase/D
ecrease

150
0
112

150
0
106

0
0
6

70
73

58
73

12
0

25

25

Inter Corporate Deposit

Deferred tax liability
Current Liabilities and
Provisions
Trade Credit
Advance Taken
Provisions
Total

44
14

44
14

75
20
10
593

60
13
8
493

15
7
2
100

Assets
Fixed Assets (Net)

330

322

Investments
Current Assets, Loans &
Advances
Cash and Bank
Debtors
Inventories
Advances
Miscellaneous Expenditure
and Losses

24

10

14

10
114
105
5

6
68
72
10

4
46
33
-5

Exhibit 3.9
Cash Flow Statement for Horizon Limited for the Period 1.4.20X0 to 31.3.20X1

(Rs in million)
(A) Cash Flow from
Operating Activities
Net profit before tax&
extraordinary items
Adjustments for
Interest paid
Depreciation
Operating profit before
working capital changes
Adjustments
Debtors
Inventories
Advances
Trade credit
Advances
Provisions
Cash generated from
operations
Income tax paid
Cash flow before
extraordinary items
Extraordinary item
Net cash flow from
operating activities
(B) Cash flow from
investing activities
Purchase of fixed assets
Net cash flow from
investing activities
( C) Cash flow from
financing activities
Proceeds from secured
loans
Proceeds from unsecured
loans

68
21
30

119
(46)
(33)
5
15
7
2
69
34
35
0
35

(38)
(38)

12
44

Interest paid
Dividend paid
Net cash flow from
financing activities
(D) Net Increase in Cash
and Cash Equivalents:
(A) + (B) + ( C)

(21)
(28)
7

Cash and cash equivalents

as on 1.04.20x0

Cash and cash equivalents

as on 1.04.20x1

10

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability

14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14 Deferred tax liability14

Exhibit 4.1
HORIZON Ltd:Profit and Loss Account for the Year
31st March 20X1 (Rs. million)
--------------------------------------------------------- -------------------------- ---------------------- ----------------- -----------------20X1
20X0
--------------------------------------------------------- -------------------------- ---------------------- ----------------- -----------------Net Sales
701
623
Cost of Goods Sold
552
475
Stocks
421
370
Wages and Salaries
68
55
Other Manufacturing Expenses
63
50
Gross Profit
149
148
Operating Expenses
60
49
Depreciation
30
26
General Administration
12
11
Selling
18
12
Operating Profit
89
99
Non-operating Surplus/Deficit
0
6
Earnings Before Interest and Tax
89
105
Interest
21
22
Profit Before Tax
68
83
Tax
34
41
Profit After Tax
34
42
Dividends
28
27
Retained Earnings
6
15
Per Share Data (in Rupees)
Earnings per Share
2.27
2.80
Dividend per Share
1.87
1.80
Market Price Per Share
21.0
20.0
Book Value per Share
17.47
17.07
__________________________________ ________________ _____________ __________ ___________

Exhibit 4.2
HORIZON Ltd: BALANCE SHEET AS ON 31, March 20X1
(Rs. Million)
--------------------------------------------------------- -------------------------- ---------------------- ----------------- -----------------20X1
20X0
--------------------------------------------------------- -------------------------- ---------------------- ----------------- -----------------I. Shareholder's Funds
(a) Share Capital
(b) Reserves and Surplus
Loan Funds

262.0
150.0
112.0

256.0
150.0
106.0

Secured Loans
(i) Due after one year
(ii)Due within one year
Unsecured Loans
(i) Due after one year
(ii)Due within one year
Deferred tax liability
TOTAL

II. Application of funds

Fixed Assets (net)
Investments
(a) Longterm Investments
(b) Current Investments
Current Assets, Loans and Advances
Inventories
Debtors
Cash and Bank
Loans and Advances

143.0
108.0
35.0
69.0
29.0
40.0
14
---488.0
----

131.0
90.0
41.0
25.0
10.0
15.0
---412.0
----

330.0
24.0
21.0
3.0
234.0
105.0
114.0
10.0
5.0

322.0
10.0
7.0
3.0
156.0
72.0
68.0
6.0
10.0

Less:Current Liabilities and Provisions

Net Current Assets

105.0
129.0

81.0
75.0

Miscellaneous expenditures & losses

5.0
---488.0
----

5.0
---412.0
----

TOTAL

Exhibit 4.3
Comparision Ratios of Horizon Limited with Industry Average
--------------------------------------------------------- -------------------------- ---------------------- ----------------- -----------------RATIO
FORMULA
HORIZON
INDUSTRY
Ltd.
AVERAGE
--------------------------------------------------------- -------------------------- ---------------------- ----------------- -----------------LIQUIDITY

* Current Ratio

Cur. Assets/ Cur.

Liabilities

1.32

1.26

* Acid-test Ratio

(Quick Asts./Cur.
Liabilities)

0.73

0.69

(Cash and Bank

Balances+Current
Investments)/
(Current Liabilities)

0.07

LEVERAGE
* Debt-Equity Ratio

Debt/Equity

0.81

1.25

* Debt-Assets ratio

Debt/Assets

0.43

0.56

* Int. Coverage Ratio

EBIT/Interest
(EBIT+
Depreciaiton/ Debt
Interest
(EBIT+Depreciation
)/ Int+(loan
Repayment/(1TaxRate))

4.24

4.14

* Cash Ratio

Modification of the above

* Fixed Charges Coverage Ratio

5.67

0.70

TURNOVER

* Average Collection Period (days)

Cost of Goods
Sold/Average
Inventory
Net Credit
Sales/Average
Accounts
Receivable
Receivables/
Average Sales Per
Day

47.38

* Fixed Assets Turnover Ratio

Net Sales/Fixed
Assets

2.15

2.23

* Total Assets Turnover Ratio

Net Sales/Total
Assets

1.56

1.26

* Inv. Turnover Ratio

* Debtors' Turnover Ratio

6.24

6.43

7.70

7.50

PROFITABILITY

* Gross Profit Margin Ratio

Gross Profit/Net
Sales

* Net Profit Margin Ratio

Net Profit/Net Sales

21.26%

18.00%

4.85%

4.00%

Net Income(Profit)/
Average Assets

7.56%

Net Income(Profit)+
Interest/ Average
Assets

12.22%

* Earnings Power

EBIT/Average Total
Asets

19.78%

17.70%

* Return on Capital Employed

EBIT(1-T)/ Average
Total Assets

9.89%

8.80%

* Return On Equity

Equity
Earnings/Average
Equity

13.13%

11.90%

* Return on Assets

(Variant of the above)

6.90%

VALUATION

* Price-Earnings ratio

* Yield

* Market Value to Book Value Ratio

Market Price per

Share/ Earnings
per Share

(Dividend+Price
Change)/ Initial
Price

Market Price per

Share/ Book Value
per Share

9.26

14.33%

1.20

9.26

14.10%

1.16

--------------------------------------------------------- -------------------------- ---------------------- ----------------- -----------------Exhibit 4.7

Part A: Profit and Loss Account
Regular(Rs.in crore)
Common Size(%)
20X0
20X1
20X0
20X1
Net sales
623
701
100
100
Cost of goods
475
552
76
79
Gross profit
148
149
24
21
PBIT
105
89
17
13
Interest
22
21
4
3
PBT
83
68
13
10
Tax
41
34
7
5
42
34
PAT
7
5
Part B: Balance Sheet
Shareholders' funds
256.0
262.0
62
54
Loan funds
156.0
212.0
38
43

Deferred tax liability

Total
Fixed assets
Investments
Net current assets
Miscellaneous expenditures & losses
Total

Net sales
Cost of goods
Gross profit
PBIT
Interest
PBT
Tax
PAT

Shareholders' funds
Loan funds
Deferred tax liability
Total
Fixed assets
Investments
Net current assets
Miscellaneous expenditures & losses
Total

0
412.0
322.0
10.0
75.0
5.0
412.0

14
488.0
330.0
24.0
129.0
5.0
488.0

Exhibit 4.8
Part A: Profit and Loss Account
Regular(Rs.in crore)
20X0
20X1
623
701
475
552
148
149
105
89
22
21
83
68
41
34
42
34
Part B: Balance Sheet
Regular(Rs.in crore)
20X0
20X1
256.0
262.0
156.0
212.0
0
14
412.0
488.0
322.0
330.0
10.0
24.0
75.0
129.0
5.0
5.0
412.0
488.0

0
100
78
2
18
1
100

3
100
68
5
26
1
100

Common Base Year

20X0
20X1
100
113
100
116
100
101
100
85
100
95
100
82
100
83
100
81
Common Base Year
20X0
20X1
100
102
100
136
100
100
118
100
102
100
240
100
172
100
100
100
118

Exhibit 5.2
Proforma Profit and Loss Account for Spaceage Electronics
for 20X3 Based on Per cent of Sales Method
-------------------------------------------------- -------------- -------------- ------------------- ---------------------------Historical Data
Pro forma income
statement of 20x3
-------------- -------------- ------------------with sales of
20x1
20x2
Average %
1400
-------------------------------------------------- -------------- -------------- ------------------- ---------------------------Net Sales
1200
1280
100.0
1400.0
Cost of Goods Sold
775
837
65.0
910.0
Gross Profit
425
443
35.0
490.0
Selling Expenses
25
27
2.1
29.4
General and Administration
0.0
0.0
Expenses
53
54
4.3
60.4
Depreciation
75
80
6.3
87.5
Operating Profit
272
282
22.3
312.7
Non-operating Surplus/deficit
30
32
2.5
35.0
Earning before Interest & Tax
302
314
24.8
347.7
Interest on Bank Borrowings
60
65
5.0
70.6
Interest on Debentures
58
60
4.8
66.6
Earnings Before Tax
184
189
15.0
210.6
Tax
82
90
6.9
97.1
Earnings after Tax
102
99
8.1
113.5
Dividends
60
63
Retained Earnings
42
36
-------------------------------------------------- -------------- -------------- ------------------- ----------------------------

Exhibit 5.3
Proforma Profit and Loss Account for Spaceage Electronics
for 20x3 Using the Combination Method
-------------------------------------------------- -------------- -------------- ------------------- ---------------------------Historical Data
Pro forma income
statement of 20x3
-------------- -------------- ------------------with sales of
20x1
20x2
Average %
1400
-------------------------------------------------- -------------- -------------- ------------------- ---------------------------Net Sales
1200
1280
100.0
1400.0
Cost of Goods Sold
775
837
65.0
910.0
Gross Profit
425
443
35.0
490.0

Selling Expenses
25
27
2.1
29.4
General and Administration
Expenses
53
54 Budgeted
56.0
Depreciation
75
80 Budgeted
85.0
Operating Profit
272
282
@
319.6
Non-operating Surplus/deficit
30
32
2.5
35.0
Earning before Interest & Tax
302
314
@
354.6
Interest on Bank Borrowings
60
65
5.0
70.6
Interest on Debentures
58
60 Budgeted
65.0
Earnings Before Tax
184
189
@
219.1
Tax
82
90 Budgeted
90.0
Earnings after Tax
102
99
@
129.1
Dividends
60
63 Budgeted
70.0
Retained Earnings
42
36
@
59.1
-------------------------------------------------- -------------- -------------- ------------------- ---------------------------@ These items are obtained using accounting identities

Exhibit 5.4
Proforma Balance Sheet for Spaceage Electronics
for December 31, 20x3
-------------------------------------------------- -------------- -------------- ------------------- ---------------------------Historical Data
Projections for
-------------- -------------- ------------------Dec 31, 20x3
Dec 31
Dec 31
Ave. of %
Based on
20x1
20x2
Sales or
a Forecast
Some other
Sales of 1400
Method
-------------------------------------------------- -------------- -------------- ------------------- ---------------------------Net Sales
1200
1280
100.0%
1400
-------------------------------------------------- -------------- -------------- ------------------- ---------------------------ASSETS
Fixed Assets (Net)
800
850
66.5%
931.5
Investments
30
30 no change
30.0
Current Assets, Loans & Advances
* Cash and Bank Balances
25
28
2.1%
29.9
* Receivables
200
212
16.6%
232.6
* Inventories
375
380
30.4%
426.2
* Pre paid expenses
50
55
4.2%
59.3
Misc. Expenses and losses
20
20 no change
20.0
---------TOTAL
1500
1575
1729.4

---LIABILITIES
Share Capital
* Equity
* Preference
Reserves & Surplus

250
50
250

SECURED LOANS
* Debentures
400
* Bank borrowings
300
UNSECURED LOANS
* Bank Borrowings
100
CURRENT LIABILITIES AND BORROWINGS
* Trade creditors
100
* Provisions
50
EXTERNAL FUNDS REQUIREMENT
---1500
----

----

----

250 no change
50 no change
286 Proforma
Income
Statement

250.0
50.0
345.1

400 no change
305
24.4%

400.0
341.5

125

9.1%

127.0

112
47

8.5%
3.9%
Balancing
Figure

119.7
54.8
41.4

---1575
----

---1729.4
----

Profit and Loss

account

Average
percent
of sales

1200

20X2
1280

Cost of goods sold

775

837

65.0 = D3/$D$2*$F$2

909.8

Gross profit

425

443

35.0 = D4/$D$2*$F$2

490.2

Selling expenses

25

27

2.1 =D5/$D$2*$F$2

29.3

General and
administration
Depreciation

53

54

75

80

30

32

Net sales

Operating profit
Non-operating
surplus/deficit
Profit before interest and
tax
Interest on bank
borrowings
Interest on debentures
Profit before tax
Tax
Profit after tax
Dividends
Retained earnings
Balance Sheet

Fixed assets(net)
Investments
Current assets, loans and
advances
Cash and bank
Receivables
Inventories
Pre-paid expenses
Miscellaneous
expenditures and losses
Total
Liabilities
Share capital
Equity
Preference
Reserves and surplus
Secured loans
Debentures
Bank borrowings

20x1

Before
Iteration
Proforma
profit and loss
account for

100.0 Projected

1400.0

Budgeted

56.0

Budgeted
=F4-F5-F6-F7
2.5 =D9/$D$2*$F$2

85.0
319.8
35.0

=F8+F9
60

65

5.0 =D11/$D$2*$F$2

58

60

82

90

60

63

=0.15*C34
=F10-F11-F12
Budgeted
=F13-F14
Budgeted
=F15-F16

800
30

850
30

66.5 =D19/$D$2*$F$2
=C20

25
200
375
50
20

28
212
380
55
20

2.1
16.6
30.5
4.2

1500

1575

250
50
250

250
50
286

400
300

400
305

354.8
70.5
60.0
224.3
90.0
134.3
70.0
64.3
Proforma
balance sheet
for 20X3
931.5
30.0

=D22/$D$2*$F$2
=D23/$D$2*$F$2
=D24/$D$2*$F$2
=D25/$D$2*$F$2
=C26
=F19+F20+F22+F23+F24+F25+F26

=C30
=C31
=C32+F17
=F41-F30-F31-F32-F35-F37-F39-F40
24.4 =D35/$D$2*$F$2

29.9
232.6
426.6
59.2
20.0
1729.8

250.0
50.0
350.3
436.6
341.8

Unsecured loans
Bank borrowings
Current liabilities and
provisions
Trade creditors
Provisions
Total

100

125

9.0 =D37/$D$2*$F$2

126.7

100
50
1500

112
47
1575

8.5 =D39/$D$2*$F$2
3.9 =D40/$D$2*$F$2
=F27

119.6
54.9
1729.8

Profit and Loss

account
Net sales
Cost of goods sold
Gross profit
Selling expenses
General and
administration
Depreciation
Operating profit
Non-operating
surplus/deficit
Profit before interest and
tax
Interest on bank
borrowings
Interest on debentures
Profit before tax
Tax
Profit after tax
Dividends
Retained earnings
Balance Sheet

Fixed assets(net)
Investments
Current assets, loans and
advances
Cash and bank
Receivables
Inventories
Pre-paid expenses
Miscellaneous
expenditures and losses
Total
Liabilities
Share capital
Equity
Preference
Reserves and surplus
Secured loans
Debentures

20x1
1200
775
425
25
53
75

20X2
1280
837
443
27
54
80

30

32

After
Iteration
Proforma
profit and
loss
account for
20X3

Average
percent
of sales
100.0
65.0
35.0
2.1

Projected
= D3/$D$2*$F$2
= D4/$D$2*$F$2
=D5/$D$2*$F$2
Budgeted
Budgeted
=F4-F5-F6-F7
2.5 =D9/$D$2*$F$2
=F8+F9

1400.0
909.8
490.2
29.3
56.0
85.0
319.8
35.0
354.8

60

65

5.0 =D11/$D$2*$F$2

58

60

82

90

60

63

=0.15*F34
=F10-F11-F12
Budgeted
=F13-F14
Budgeted
=F15-F16

800
30

850
30

66.5 =D19/$D$2*$F$2
=C20

931.5
30.0

25
200
375
50
20

28
212
380
55
20

2.1
16.6
30.5
4.2

29.9
232.6
426.6
59.2
20.0

1500

1575

250
50
250

250
50
286

=C30
=C31
=C32+F17

400

400

=F41-F30-F31-F32-F35-F37-F39-F40 443.0

=D22/$D$2*$F$2
=D23/$D$2*$F$2
=D24/$D$2*$F$2
=D25/$D$2*$F$2
=C26

70.5
66.5
217.8
90.0
127.8
70.0
57.8
Proforma
balance
sheet for
20X3

=F19+F20+F22+F23+F24+F25+F26 1729.8

250.0
50.0
343.8

Bank borrowings
Unsecured loans
Bank borrowings
Current liabilities and
provisions
Trade creditors
Provisions
Total

300

305

24.4 =D35/$D$2*$F$2

341.8

100

125

9.0 =D37/$D$2*$F$2

126.7

100
50
1500

112
47
1575

8.5 =D39/$D$2*$F$2
3.9 =D40/$D$2*$F$2
=F27

119.6
54.9
1729.8

Amount of deposit per period(PMT) Rs.

No.of periods (NPER)
years
Interest rate (RATE)
p.a.
Accumulated amount (FV)
Rs.
Formula used

30,000
30
8%
3,398,496
=FV(B3,B2,-B1)

Future value(Fv)
8,000
Periods in years (Nper)
6
Rate
Periodic payment(Pmt) (1,000) =RATE(B2,B3,,B1)

11.43%

Year
Cash flow
Discount rate

1
2
3
4
5
6
7
8
1,000 2,000 2,000 3,000 3,000 4,000 4,000 5,000
12%
=NPV(B3,B2:I2)
#####

Monthly payment(Pmt)
Period
months(Nper)
Rate ofininterest
per
month(Rate)

Rs.12,000
36

Present value

1.50%

=PV(B3,B2,B1)

331,928

No. of
Annual
instalments instalment
amount
Present value Interest rate (in years)
1,000,000
15%
5
(298,316)
Beginning
Annual
Principal
amount
instalment
Interest
repayment
Year
1
1,000,000
298,316
150000
148,316
2
851,684
298,316
127753
170,563
3
681,121
298,316
102168
196,148
4
484,973
298,316
72746
225,570
5
259,403
298,316
38910
259,406

Remaining
balance
851,684
681,121
484,973
259,403
(3)

Initial deposit
Interest rate
Period in years

300,000
10% Annual withdrawal
10 =PMT(B2,B3,-B1)

48,824

Settlement 1/1/2006 This is the date of purchase. If not certain, fill in any date.
Maturity
######## The formula in this case is = B3+365*8 , as the maturity period is 8 years.
Rate
12% The annual coupon rate
Yield
14% The required return per annum
Redemption
100 Fill in the redemption value as a percentage of the par value
Frequency
2 This represents the number of times interest is paid in an year
Basis
3 3 represents the day count convention: actual no. of days/365 in int.calculation
Price
90.55 To get the result in B8, use the function =PRICE(B1,B2,B3,B4,B5,B6,B7)
Bond price is obtained per Rs.100 of the face value of the bond. Thus,had the redemption value been
Rs. 1000, the price would have been Rs.90.55 x 10

Formula used
Price of the bond at present(PV)
Rs.
Par value/Maturity value of the bond(FV)
Rs.
Coupon rate per period
Coupon amount payabole per period(PMT)
Rs.
=C3*C4
No. of periods(NPER)
Yield to Maturity(RATE)
=RATE(C6,C5,-C2,C3,0)

800
1,000
9%
90
8
13.20%

Yield to maturity of a bond can also be obtained using the Yield formula in Excel, as shown below
Formula used
Settlement
As the date is not given, use any date 1/1/2011
Maturity
=C11+365*8
12/30/2018
Rate
9%
Redemption
100
Frequency
1
Basis
3
Price
=800/10
80
Yield to maturity
=YIELD(C11,C12,C13,C17,C14,C15,C16)13.20%
Note: The parameters are the same as that used in the spreadsheet illustration for 'PRICE'

g1

g2

n(years)

20%
10%
6
15%
P0(Rs)
Formula used=E2*(1+A2)*(1-((1+A2)/(1+D2))^C2)/(D2-A2)+E2*(1+A2)*(1+A2)^(C2-1)*(1+B2)/(D2-B2)/(1+D2)^C2

D0(Rs)
2
70.76

ga

gn

H(years)

D0(Rs)

50%
12%
5
16%
3
P0(Rs) Formula used =E2*((1+B2)+C2*(A2-B2))/(D2-B2) 226.50

Exhibit 8.1
Data on S&P CNX Nifty

DATE

NIFTY

Dec
24, 330.86
1990*
Dec 24, 1991 558.63

ANNUAL
DATE
NIFTY
RETURN(
%)
Dec 29, 2000 1263.55

ANNUAL
RETURN(
%)
-14.65

68.84

Dec 31, 2001 1059.05

761.31

36.28

Dec 31, 2002

1093.5

3.25

Dec 24, 1993 1042.59

36.95

Dec 31, 2003 1879.75

71.90

Dec 23, 1994 1182.28

13.40

Dec 31, 2004

2080.5

10.68

Dec 29,1995

908.53

-23.15

Dec 30, 2005 2836.55

36.34

Dec 31, 1996

899.1

-1.04

Dec 29, 2006 3,966.40

39.83

Dec 31, 1997

1079.4

20.05

Dec 31, 2007 6,138.60

54.77

Dec 31, 1998

884.25

-18.08

Dec 31, 2008 2959.15

-51.79

Dec 30, 1999 1480.45

67.42

Dec 31, 2009

5201

75.76

Dec 31, 2010

6134.5

17.95

Dec 24, 1992

Arithmetic
mean

21.43 =AVERAGE(C5:C13,F4:F14)

Geometric mean calculation

DATE

NIFTY

Dec
24,
1990*
Dec 24, 1991
Dec 24, 1992
Dec 24, 1993
Dec 23, 1994
Dec 29,1995
Dec 31, 1996
Dec 31, 1997
Dec 31, 1998
Dec 30, 1999
Dec 29, 2000
Dec 31, 2001
Dec 31, 2002
Dec 31, 2003

330.86
558.63
761.31
1042.59
1182.28
908.53
899.1
1079.4
884.25
1480.45
1263.55
1059.05
1093.5
1879.75

ANNUAL 1+ANNUAL
RETURN( RETURN
%)
68.84
36.28
36.95
13.40
-23.15
-1.04
20.05
-18.08
67.42
-14.65
-16.18
3.25
71.90

1.6884
1.3628
1.3695
1.1340
0.7685
0.9896
1.2005
0.8192
1.6742
0.8535
0.8382
1.0325
1.7190

-16.18

Dec 31, 2004

Dec 30, 2005
Dec 29, 2006
Dec 31, 2007
Dec 31, 2008
Dec 31, 2009
Dec 31, 2010

2080.5
2836.55
3,966.40
6,138.60
2959.15
5201
6134.5

10.68
36.34
39.83
54.77
-51.79
75.76
17.95

Product
Geometric Mean

1.1068
1.3634
1.3983
1.5477
0.4821
1.7576
1.1795
18.5411
15.72%

=PRODUCT(D21:D40)
=D41^(1/20)-1

Period
Return (R i)
Mean
Standard deviation

1
15

2
3
12
20
=AVERAGE(B2:G2)
=STDEV(B2:G2)

4
-10

5
14

6
9
10
10.45

Exhibit 8.2 & 8.3

-------------------- -------------- -------------- --------------- --------------------------------ILLUSTRATIONS OF THE CALCULATION OF STANDARD DEVIATION
-------------------- -------------- -------------- --------------- --------------------------------BHARAT FOODS
-------------------- -------------- -------------- --------------- ----------------------------------------------------i=State of the
Pi(RiEconomy
Pi
Ri%
pi*Ripi*Ri
Ri-Rbar (Ri-Rbar)^2
Rbar)^2
--------------------------------------------------------------------------------------------------------------------------------------1. Boom
0.30
16
4.8
4.50
20.25
6.075
2. Normal
0.50
11
5.5
-0.50
0.25
0.125
3. Recession
0.20
6
1.2
-5.50
30.25
6.050
-------------------- -------------- -------------- --------------- -------------- ----------------- ----------------CALCULATIONS
Sum of
(Pi)(Ri)=

11.50
Sum of Pi(Ri-Rbar)^2=

12.25

Standard
Deviation=
[Sum{Pi(Ri-Rbar)^2}]^0.5=
3.50%
----------- ------- ------- --------------------------------- --------------------

-------------------- -------------- -------------- --------------- ----------------------------------------------------ORIENTAL SHIPPING

-------------------- -------------- -------------- --------------- --------------------------------i=State of the
Pi(RiEconomy
Pi
Ri%
pi*Ripi*Ri
Ri-Rbar (Ri-Rbar)^2
Rbar)^2
-------------------------------------------------------------------------------------------------------------------- ----------1. Boom
0.30
40
12
27.00
729
218.700
2. Normal
0.50
10
5
-3.00
9
4.500
3. Recession
0.20
-20
-4
-33.00
1089
217.800
-------------------- -------------- -------------- --------------- -------------- ----------------- ----------------CALCULATIONS
Sum of
(Pi)(Ri)=

13.00
Sum of Pi(Ri-Rbar)^2=

Standard
Deviation=

[Sum{Pi(Ri-Rbar)^2}]^0.5=

441

21.00%

-------------------- -------------- -------------- --------------- -----------------------------------------------------

-------------------- -------------- -------------- --------------- --------------------------------Exhibit 8.10

CALCULATION OF BETA

-------------------- -------------- -------------- --------------- ----------------------------------------------------YEAR

Rjt
Rmt
RjtRmt(Rjt-R#j)x
(RmtR#j
R#m
(Rmt-R#m)
R#m)^2
-------------------- -------------- -------------- --------------- ----------------------------------------------------1
10
12
-2
-1
2
1
2
6
5
-6
-8
48
64
3
13
18
1
5
5
25
4
-4
-8
-16
-21
336
441
5
13
10
1
-3
-3
9
6
14
16
2
3
6
9
7
4
7
-8
-6
48
36
8
18
15
6
2
12
4
9
24
30
12
17
204
289
10
22
25
10
12
120
144
------------------Total=
120
130
778
1022
------------Mean Rj=R#j=
12
Mean Rm=R#m=
13

-------------------- -------------- -------------- --------------- --------------------------------86.4

Beta=Bj=Cov(Rj,Rm)/Var(Rm)=
------=
0.76
113.6
Alpha=R#j-Bj*R#m=

12-(0.76)(13)= 2.12%

-------------------- -------------- -------------- --------------- ---------------------------------

0.00

Year on security
Return
j(%)
Return on market
portfolio (%)

10

10

13

(4)

13

14

18

24

22

12
5
18
=SLOPE(B2:K2,B3:K3)

(8)

30

25
2.10

10
16
7
15
0.76 =INTERCEPT(B2:K2,B3:K3)

Price of stock now

S0

60

Exercise price
Standard
deviation of continuously E
compounded annual return

Years
maturity
Interesttorate
per annum
r

56
0.3

t
d1

d2
Equilibrium value of call option now,
C0

0.5
=(LN(C1/C2)+(C5+(C3^2)/2)*C4)/(C3*(C4^0.5))

0.14
0.7613

=C6-C3*(C4^0.5)

0.5492

= C1*NORMSDIST(C6)-(C2/EXP(C5*C4))*NORMSDIST(C7)
9.61

Year
0
1
2
3
4
Cash flow
######## 200,000 200,000 300,000 300,000
Cost of capital
10%
NPV =NPV(B3,C2:G2)+B2

5
350,000
(5,272)

Year

Cash flow #######

1
30,000

=IRR(B2:F2)

2
30,000

3
40,000
15.37%

4
45,000

Exhibit 11.5
Calculation of Discounted Payback Period

Year
0
1
2
3
4
5
6
7

Discounting
Present
Cumulative net cash
Cash flow
factor @10%
value
flow after discounting
-10000
1.000
-10000
-10000
3000
0.909
2727
-7273
3000
0.826
2479
-4793
4000
0.751
3005
-1788
4000
0.683
2732
944
5000
0.621
3105
2000
0.564
1129
3000
0.513
1539

Exhibit 12.2
Project Cash Flows
------------------------------------------------ -------------- -------------- -------------- -------------- -------------- -------------YEAR ---->
0
1
2
3
4
5
------------------------------------------------ -------------- -------------- -------------- -------------- -------------- -------------1. Fixed Assets
(80.00)
2. Net working capital margin
(20.00)
3. Revenues
120.00
120.00
120.00
120.00
120.00
4. Costs (Other than D&I)
80.00
80.00
80.00
80.00
80.00
5. Depreciation
20.00
15.00
11.25
8.44
6.33
6. Profit before Tax
20.00
25.00
28.75
31.56
33.67
7. Tax
6.00
7.50
8.63
9.47
10.10
8. Profit after tax
14.00
17.50
20.13
22.09
23.57
9. Net salvage value
30.00
10. Net recovery of WC margin
20.00
11. Initail Flow
(100.00)
12. Operating Flow
34.00
32.50
31.38
30.53
29.90
13. Terminal Flow
50.00
14. Net Cash Flow
(100.00)
34.00
32.50
31.38
30.53
79.90
Book Value of Investment

100.00

Tax Rate

80.00

65.00

0.3
Irr =

26.18%

0.3
DR =

53.75
0.3

45.31
0.3

25.00% C.o.C.=

0.3
30.00%

Exhibit 12.3
------------------------------------------------------- -------------- -------------- -------------- -------------- -------------- -------------CASH FLOWS FOR THE K-CIN PROJECT
------------------------------------------------------- -------------- -------------- -------------- -------------- -------------- -------------YEARS
(Rs. Million)
0
1
2
3
4
5
------------------------------------------------------- -------------- -------------- -------------- -------------- -------------- -------------1. Capital Investment
(100.00)
2. Level of Working Capital
20
30
40
30
20
0
3. Revenues
100
150
200
150
100
4. Raw Material Cost
30
45
60
45
30
5. Labour Cost
20
30
40
30
20
6. Operating and Maintenance Cost
5
5
5
5
5
7. Loss of Contribution
15
15
15
15
15
8. Depreciaiton
25.00
18.75
14.06
10.55
7.91
9. Bad Debt Loss
5
10. Profit Before Tax
5.00
36.25
65.94
44.45
17.09
11. Tax
2.00
14.50
26.38
17.78
6.84
12. Profit After Tax
3.00
21.75
39.56
26.67
10.25
13. Net Salvage Value of Equipment
20
14. Recovery of Working Capital
15
------------------------------------------------------- -------------- -------------- -------------- -------------- -------------- -------------15. Initial Investment
(100.00)
16. Operating Cash Inflow (12+8+9)
28.00
40.50
53.63
37.22
23.16
17. Change in Working Capital
20.00
10.00
10.00
-10.00
-10.00
18. Terminal Cash Flow (13+14)
35
------------------------------------------------------- -------------- -------------- -------------- -------------- -------------- -------------19. Net Cash Flow (15+16-17+18)
-120.00
18.00
30.50
63.63
47.22
58.16
------------------------------------------------------- -------------- -------------- -------------- -------------- -------------- -------------ASSUMPTIONS
------------------------------------------------------- -------------- -------------- -------------- -------------- -------------- -------------Raw Material Cost =
30.00% of sales
Labour Cost =
20.00% of sales
Operating & Maintenance Cost =
1 million
Overhead Allocation =
10.00% of sales
Depreciation Rate =
25.00%
Working Capital =
0.2 of sales
Short Term Borrowing for W/C =
0.5 of W/C
Interest on Short Term Borrow=
0.18
Debentures =
0.5 of Capital Investment
Interest on Debentures =
0.15
Tax Rate =
0.4
Net Salvage Value of Equipment
4 lakhs
------------------------------------------------------- -------------- -------------- -------------- -------------- -------------- --------------

Exhibit 12.4
Cash Flows for the Replacement Project
1
2

Year
I. Investment Outlay
1. Cost of New Asset
2. Salvage Value of Old Asset
3. Increase in Net Working Capital
4. Total Net Investment(1-2+3)
II. Operating Inflows Over the Project Life
Cycle

-1600.00
500.00
100.00
1200.00

5. After Savings in Manufacturing Costs

6. Depreciaiton on New Machine
7. Depreciation on Old Machine
8. Incremental Depreciation(6-7)

180.00
400.00
100.00
300.00

180.00
300.00
75.00
225.00

180.00
225.00
56.25
168.75

180.00
168.75
42.19
126.56

9. Tax savings in Incremental Depreciaiton

10. Net Operating Cash Flow (5+9)
III. Terminal Cash Flow

120.00
300.00

90.00
270.00

67.50
247.50

50.63
230.63

300.00

270.00

247.50

230.63

11. Net Terminal Value of New Machine

12. Net Terminal Value of Old Machine
13. Recovery of Incremental Working Capital
14. Total Yerminal Cash Flow (11-12+13)
IV. Net Cash Flow (4+10+14)
Depreciation Rate
Tax Rate

1200.00
25%
40%

180.00
126.56
31.64
94.92
37.97
217.97

800.00
160.00
100.00
740.00
957.97

Factors
Initial investment
Cost of capital
Sales

Exhibits 13.2 &3 on Sensitivity Analysis-Illustration

( All amounts in Rupees thousands)
Expected values
Calculation of expected net present value
20,000
Investment
20,000
12%
Sales
18,000
18,000
Variable costs
12,000

Variable cost per unit as

a fraction of sales
Fixed costs
Depreciation as a
percentage of the
investment
Tax rate
Life of the project in
years
Net salvage value

2/3
1,000

Fixed costs
Depreciation

1,000
2,000

10%
1/3

Pre-tax profit
Taxes

3,000
1,000

10

Profit after taxes

Cash flow from
operations
Salvage value
Net present value

2,000

For sensitivity analysis proceed as follows.In cell B18 copy

the formula for NPV from cell E14. .Leave the adjcacent cell to
the left(A18) blank and then fill the various values of
investment, one below the other from cell A19 onwards( in
this case 24,000 and 18,000). Highlight(select) A18 to B20
and then from the drop-down menu for Data, select table. In
the dialogue box that appears, type against column input cell
,the cell reference B4 and click OK. The NPV values
corresponding to the various investment figures will be
automatically filled in. Next give headings Investment and
NPV in cells A18 and B18 respectively as separately
shown.To change the numerical value into text in cell B18 go
to Format>Cells>Custom and against Type, type out " Net
present value"
Investment
2,601
24,000
(646)
18,000
4,224
The following analysis is done using the above technique
Variable costs as a
percentage of sales
Net present value
70%
340.80
65%
3730.94

4,000
0
2,601

Sales
15000
21,000

Net Present Value

(1,166)
6,368

Fixed Costs
1,300
800

Net present value

1,471
3,354

Discount rate
Project life
12%
10
Expected values
Investment in year 0
Variable costs as a percentage of sales
For years 1 to 10
Sales
Variable costs
=C7*C5
Fixed costs
Depreciation
=-C4/B2
Pre-tax profit
Taxes
=C11*C2
Profit after taxes
=C11-C12
Cash flow from operation
=C13+C10
Present value of the cash flow stream =PV(A2,B2,-C14)
Net present value of the project
=C15+C4
Key variables
Investment
Sales
Variable costs as a percent of sales
Fixed costs

Pessimistic
-24,000
15,000
70
1,300

Tax rate
33.33%
(20,000)
66.67%
18,000
12,001
1,000
2,000
2,999
1,000
2,000
4,000
22,599
2,599
Expected
-20,000
18,000
66.67
1,000

Optimisti
c
-18,000
21,000
65
800

Scenario Summary
Current Values:

Pessimistic

Expected

Optimistic

Changing Cells:
$C$4
(20,000)
(24,000)
(20,000)
(18,000)
$C$7
18,000
15,000
18,000
21,000
$C$5
66.67%
70.00%
66.67%
65.00%
$C$9
1,000
1,300
1,000
800
Result Cells:
$C$16
2,599
-7,426
2,599
10,064
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.

Calculation of Financial Break-even using the

data in Exhibit 13.7
('000)
Year
0 1 to 10
Investment
20,000
Variable costs as a fraction of
sales
2/3
Tax rate
33.33%
Sales per year
18,000
Variable costs per year
12,000
Fixed costs per year
1,000
Depreciation per year
2,000
Pre-tax profit per year
3,000
Taxes per year
1,000
Profit after taxes per year
Cash flow from operation per
year
Accounting break-even level of
sales
Calculation of the financial
break-even level of sales
Discount rate
Project life in years
Total of the present values of
the cash inflows
Initial investment
Financial break-even level of
sales

2,000
4,000
9,000

12%
10

22,601
20,000
15,928

Illustration of Certainty Equivalent

Risk free inteerest rate

Year
0
1
2
3
4

Expected
cash flow
-4,500,000
1,000,000
1,500,000
2,000,000
2,500,000
Net present value

Certainty
Equivalent
Coefficient
1
0.9
0.85
0.82
0.78

(Amounts in Rupees)
5%
PV of
Certainty
certainty
equivalent
equivalent
value
value
-4500000
-4,500,000
900000
857,143
1275000
1,156,463
1640000
1,416,694
1950000
1,604,270
534,569

Exhibit 14.2 Determination of Breaking Point and the Resulting Range of Total New Financing
for Shiva Electronics
Source of
Capital

Cost

Range of New Financing

(Rs. Mill)

Breaking Point
(Rs. Mill)

Equity

18%
20%

0 to 30
Above 30

75
-

Debt

10%
11%

0 to 50
Above 50

83.33
-

Proportion: Equity
Debt

Range of Total New

Financing
0 to 75
Above 75
0 to 83.33
Above 83.33

40%
60%

Exhibit 14.3 Weighted Average Cost of Capital for Various Ranges of Total Financing for
Shiva Electronics
Range of Total
New Financing
(Rs. Mill)
0

to

75

75

to

83.33

Above 83.33

Source of Capital

(1)
(2)
Equity
40%
Debt
60%
Weighted Average Cost of Capital
Equity
40%
Debt
60%
Weighted Average Cost of Capital
Equity
40%
Debt
60%
Weighted Average Cost of Capital

Exhibit 14.4 The Weighted Marginal Cost of Capital

Range of Total Financing

0
to
75
75
to
83.33
Above 83.33

Proportion

Weighted Marginal Cost of

Capital (%)
13.20%
14.00%
14.60%

Cost %
(3)
18.00%
10.00%
20.00%
10.00%
20.00%
11.00%

weighted
cost %
(2)x(3)
7.20%
6.00%
13.20%
8.00%
6.00%
14.00%
8.00%
6.60%
14.60%

Exhibit 23.7
Financial Information for Horizon Limited
Balance Sheet Data
Beginning End of
Profit & Loss Aaccount Data
of 20X0
20X0
Sales
800 Inventory
96
Cost of goods sold
720 Accounts receivable
86
Accounts payable
56
Inventory period in days
Accounts receivable period in days
Accounts payable period in days
Operating cycle
Cash cycle

102
90
60
50.2
40.2
29.4
90.3
60.9

Illustration of Cash Requirement for Working Capital

(Amounts in Rs.million)
Sales

240.00 Credit period granted on sales(months)

Credit period extended by
Materials consumed
72.00 suppliers(months)
Period of arrear in payment of
Wages paid
48.00 wages(months)
Period of arrear in payment of cash
Manufacturing expenses outstanding at the end
4.00
of theexpenses(months)
year
Total administrative expenses
30.00
Gross profit
0.25
Stocking period of raw materials (months)

2.00

Stocking period of finished goods(months)

Cash balance maintained
Safety margin on working capital
requirement
Total manufacturing cost
Manufacturing expenses
Cash manufacturing expenses
Depreciation
Cash manufacturing cost
Total cash cost
Current assets
Debtors
Raw material stock
Finished goods stock
Cash balance
Total current assets
Working capital
Safety margin on working capital
Working capital required

1.00
5.00

2
3
1
1

0.10
180.00
60.00
48.00
12.00
168.00
198.00
33.00
12.00
14.00
5.00
64.00
38.00
3.80
41.80

Current Liabilities
Sundry creditors
Manufacturing expeses outstanding
Wages outstanding
Total current liabilities

18.00
4.00
4.00
26.00

1. Sales
2. Credit Sales
3. Collection of Accounts
Receivables
4. Cash Sales
5. Receipt from Sale of
Equipment
6. Interest
Total Cash receipts

1. Material Purchases

Exhibit 24.2
Forecast of Cash Receipts
January
February March
April
May
June
100000
100000
100000
120000
120000
120000
80000
80000
80000
96000
96000
96000
80000
20000

80000
20000

80000
20000

80000
24000

88000
24000

96000
24000

105000

104000

112000

2000
122000

Exhibit 24.3
Forecast of Cash Payments
January February
March
40000
40000
48000

April
48000

May
48000

June
48000

5000
100000

100000

2. Credit Material Purchases

40000

40000

48000

48000

48000

48000

3. Payment of Accounts Payable

40000

40000

40000

48000

48000

48000

4. Miscellaneous Cash Purchases

5. Wages
6. Manufacturing Expenses
7. General Admin. and Selling
Expenses
8. Dividend
9. Tax
10. Capital Expenditure
Total

2000
15000
20000

2000
15000
20000

2000
15000
20000

2000
15000
20000

2000
15000
20000

2000
15000
20000

10000

10000

10000

10000

10000

10000
20000
20000

87000

50000
137000

95000

95000

135000

1. Opening Cash Balance

2. Receipts
3. Payments
4. Net Cash Flow
5. Cumulative Net Cash Flow
6. Opening Cash Balance
7. Minimum Cash Balance
Required
8. Surplus or Deficit in Relation to
the Minimum Cash Balancd
Required

87000

Exhibit 24.4
Summary of Cash Forecast
January February
March
22000
100000
100000
105000
87000
87000
137000
13000
13000
-32000
13000
26000
-6000
35000
48000
16000

April

May

June

104000
95000
9000
3000
25000

112000
95000
17000
20000
42000

122000
135000
-13000
7000
29000

20000

20000

20000

20000

20000

20000

15000

28000

-4000

5000

22000

9000

Exhibit 25.2

Construction of a Credit Rating Index (based on a 5-point rating scale)

Factor

Factor weight
0.30
0.20
0.20
0.10
0.20

Past payment
Net profit margin
Current ratio
Debt-equity ratio
Return on equity

Rating
4
*
*

*
*
*
Rating index

Illustration of Days Sales Outstanding

Month
January
February
March
April
May
June
July
August
September
October
November
December
Days Sales Outstanding
End of quarter 1
End of quarter 2
End of quarter 3
End of quarter 4

Sales(Rs.in
million)
150
156
158
150
170
180
190
200
210
220
230
240
62
58
55
56

Receivables
400
360
320
310
300
320
340
350
360
380
400
420

No.of days in the

month
31
28
31
30
31
30
31
31
30
31
30
31

Factor
score
1.20
0.80
0.60
0.40
1.00
4.00

Safety stock and calculations in Exhibit 26.2

Daily usage
Lead time in
rate in tons
Probability
days
Probability
10
0.2
20
0.25
20
0.6
30
0.50
30
0.2
40
0.25
Stockout cost estimated per ton (Rs.)
10,000
Carrying cost per ton per year (Rs.)
1,400
(a)
Normal usage in tons
600
=SUMPRODUCT(A43:A45,B43:B45)*SUMPRODUCT(C43:C45,D43:D45)
Daily usage
rate
10
10
10
20
20
20
30
30
30

Lead time in
days
20
30
40
20
30
40
20
30
40

Safety stock (tonnes)

Stockout
600
0
300
300
200
100
400
0

200
300
600

Possible levels
of usage
200
300
400
400
600
800
600
900
1200

Safety stock

200
300
600

Stockout cost(Rs.)
Probability
0
0
3,000,000
0
1,000,000
0
4,000,000
0
2,000,000
3,000,000
6,000,000

0
0
0

Expected
stockout Carrying
cost
cost
Total cost
0
840,000
840,000
150,000 420,000
570,000
100,000 280,000
580,000
200,000
300,000
300,000
300,000
300,000
0
900,000
900,000

The optimal level of safety stock is 27 tons because at that level the cost is minimised.

Exhibit 28.2
Xi
Account
Number
1
2
3
4
5
6
7
8
9
10

Good Accounts
Yi

Current Ratio
1.10
1.50
1.20
0.90
1.60
2.20
0.90
1.00
1.30
1.30

Bad Acounts
Xi

Return on
Investment
13
15
17
21
7
8
16
13
8
2

Account
Number
11
12
13
14
15
16
17
18
19
20

13.00
120.00
Sums
1.30
12.00
Averages
Average for both groups
X
1.1
Y
9

No.
1
2
3
4
5
6
7
8
9
10
SUM
Averages
x^2

(XX_bar)*
(X-X_bar)^2(Y-Y_bar)^2 (Y-Y_bar)

No.

Current Ratio
0.70
0.90
0.80
1.30
1.10
0.50
0.30
1.40
0.90
1.10

Return on
Investment
11
-4
6
2
6
8
8
6
3
14

9.00
0.90

60.00
6.00

(XX_bar)*
(X-X_bar)^2(Y-Y_bar)^2 (Y-Y_bar)

0.00

16

0.00

11

0.16

-0.80

0.16

36

2.40

12

0.04

169

2.60

0.01

64

0.80

13

0.09

0.90

0.04

144

-2.40

14

0.04

49

-1.40

0.25

-1.00

15

0.00

0.00

1.21

-1.10

16

0.36

0.60

0.04

49

-1.40

17

0.64

0.80

0.01

16

-0.40

18

0.09

-0.90

0.04

-0.20

19

0.04

36

1.20

0.04

49

-1.40

20

0.00

25

0.00

1.80

380

-4.70

1.46

312.00

3.00

3.26
2

y^2

692.00

of X

0.172

xy

-1.70

2 of Y

36.421

dx

0.40

of XY

-0.089

dy

Yi

6.00
Coefficients of the Discriminant Function
a
2.4203
b
0.1707
Exhibit 28.3

Z Scores for various accounts

Acount No.
Z Score
1
4.8812
2
6.1907
3
5.8060
4
5.7627
5
5.0673
6
6.6901
7
4.9092
8
4.6392
9
4.5119
10
3.4878
11
3.5718
12
1.4955
13
2.9604
14
3.4878
15
3.6864
16
2.5756
17
2.0916
18
4.4125
19
2.6903
20
5.0519

Year
1
1
2
3
4
5
6

Exhibit 29.3
Calculation of Duration
Present
Proportion of the
Cash Flow
Value at
Bond's Value
18%
2
3
4
15.00
15.00
15.00
15.00
15.00
115.00

12.71
10.77
9.13
7.74
6.56
42.60
Duration

0.142
0.120
0.102
0.086
0.073
0.476

Face Value of the Bond

100

Current Value of the Bond

89.5

Coupon (interest rate)

15%

Col 4 X
Time
5
0.142
0.241
0.306
0.346
0.366
2.856
4.257

Face value
Coupon payable
per annum
Years to maturity
in years

15%

Redemption value

100

Current market price

Any date, if the
date of purchase
is not certain)
Settlement

89.5

Maturity
Frequency

Basis

100

6 =RATE(C3,C1*C2,-C5,C4)

18%

1/1/2006

=C6+365*C3
######## =DURATION(C6,C7,C2,F3,C8,C9)
No.
of times
interest paid in a
year
1
3
represents the
day count
convention: actual
no. of days/365 ,
in interest
calculation
3

4.25

Given:
Cost of the vehicle
Operating,
maintenance,insurance and
other costs in year 1
Increase in the above cost
per annum
Useful life of the car- in
years
Net salvage value of the
car at the end of 5 years
Depreciation rate -WDV
Marginal tax rate of
Centaur
Cost of capital of Centaur

(Rs.in million)
1.2

0.2
8%
5
0.4
40%
35%
11%
Exhibit 30.1

Post-tax Cash Flows Associated with the Ownership and Operation of the Car
Year
0
1
2
3
4
Initial cost
-1.200
Operating and other costs
-0.200
-0.216
-0.233
-0.252
Depreciation rate -WDV
0.480
0.288
0.173
0.104
Tax shield operating costs and
depreciation
0.238
0.176
0.142
0.124
Net salvage value
Post-tax cash flow
-1.200
0.038
-0.040
-0.091
-0.127
Discount factor
1.000
0.901
0.812
0.731
0.659
Present value
-1.200
0.034
-0.032
-0.067
-0.084
Present value of the costs
PVIFA
Post-tax EAC
Lease rental

1.203
3.696
0.326
0.501
Exhibit 30.2 Cash Flow of the Lease Contract
Year
0
1
2
3
4
1. Cost of fork lift
10
2. Depreciation
4.00
2.40
1.44
0.86
3. Loss of depreciation tax shield
(2 * 0.35)
-1.40
-0.84
-0.50
-0.30
4. Lease payment
-2.4
-2.4
-2.4
-2.4
5. Tax shield on lease payment (4
* 0.35)
0.84
0.84
0.84
0.84
6. Loss of salvage value
7. Cash flow of lease (1+3+4+5+6)

10.00

-2.96

-2.40

-2.06

Comparing lease and Hire purchase options

-1.86

(Amounts in Rs.)
Given:
Cost of the equipment

1,000,000

Years of use of the equipment

Net salvage value after 10 years of
use
Post-tax cost of debt to Synthetic
Chemicals

10
100,000
8%

Tax rate for Synthetic Chemicals

Depreciation rate for the equipment
as per WDV method
Hire-Purchase option:
Flat interest rate

50%
33.33%

Hire-Purchase period in months

Total interest burden
Annual HP instalment
Monthly HP instalment

36
420,000
473,333
39,444

Year
1
2
3

HP
instalment
473,333
473,333
473,333

Interest
230,811
140,000
49,189

Principal
repayment
242,523
333,333
424,144

Lease option:
Primary lease period in years

Lease rent per year during primary

lease period as a fraction of the
lease amount
Secondary lease period in years
Lease rent per year during
secondary lease period

Year

0.3
10
12,000
Exhibit 30.5

Cash Flows of Leasing and Hire-Purchase Options

Hire-Purchase
Leasing

1
2
3
4
5
6
7
8
9
10
PV of the lease cash flows

Rent
-150,000
-150,000
-150,000
-150,000
-150,000
-6,000
-6,000
-6,000
-6,000
-6,000
-615,211

Interest
-115,405
-70,000
-24,595

Principal
-242,523
-333,333
-424,144

Depn.tax
shield
166,667
111,111
74,074
49,383
32,922
21,948
14,632
9,755
6,503
4,335

NSV

100,000

PV of the HP cash flows

-587,125 Choose the lesser cost HP option

(Rs.in million)

the Car
5
-0.272
0.062
0.117
0.400
0.245
0.593
0.145

ct
5

0.52

0.31

-0.18
-2.4

-0.11
-2.4

0.84

0.84
-1.00

-1.74

-2.67

e
Net HP
cash flow
-191,261
-292,222
-374,665
49,383
32,922
21,948
14,632
9,755
6,503
104,335

Exhibit 32.3
Exhibit 32.7
Financial Statements of Matrix for the Preceding Three Years( Years 1-3) Projected Profit and Loss account for Matrix L
(Rs.in million)
Profit and Loss account
Profit and Loss Account
1
2
3
Net sales
180
200
229
Net sales
Income from excess
marketable securities
Income from marketable securities
3
Non-operating income
8
Non-operating income
Total income
180
200
240
Total income
Cost of goods sold
100
105
125
Cost of goods sold
Selling and general
administration
Selling and general administration expenses30
35
45
Depreciation
12
15
18
Depreciation
Interest expenses
12
15
16
Interest expense
Total costs and expenses
154
170
204
Total costs and expenses
PBT
26
30
36
Profit before tax
Taxes
8
9
12
Tax provision
PAT
18
21
24
Profit after tax
Dividend
11
12
12
Dividend
Retained earnings
7
9
12
Retained earnings

Projected Balance Shee

Balance Sheet
Equity capital
Reserves and surplus
Debt
Total
Fixed assets
Investments
Net current assets
Total

1
60
40
100
200
150
50
200

2
90
49
119
258
175
20
63
258

3
90
61
134
285
190
25
70
285

Equity capital
Reserves& surplus
Debt
Total
Fixed assets
Investments
Net current assets
Total

The calculation of NOPLAT for Matrix Limited:

Tax rate for Matrix Limited
EBIT
(= PBT+interest expense-interest
income -non-operating income)
Tax provision from income statement
Add: Tax shield on interest expenses
Less: Tax on interest income
Less: Tax on non-operating income
=Taxes on EBIT

40%
Year 1

38
8
4.8
0
0
12.8

Year 2

45
9
6
0
0
15

Exhibit 32.8
Free Cash Flow Forecast for Matrix Limited for
through 8
- The Explicit Fo

Year 3

41
12
6.4
1.2
3.2
14

1
2
3
4
A

Profit before tax

Interest expense
Interest income
Non-operating income
EBIT:[(1)+(2)-(3)-(4)]

NOPLAT
(=EBIT-taxes on EBIT)
ROIC
(=NOPLAT/INVESTED CAPITAL)

25.2

Net investment
[=(Net fixed assets at the end of the
year + net current assets at the end of
the year) - (Net fixed assets at the
beginning of the year + net current
assets at the beginning of the year)]

Tax provision on income

5 statement

30

27

15.0%

11.3%

38

22

7 Tax on interest income

8 Tax on non-operating income
B TAXES ON EBIT:[(5)+(6)-(7)-(8)]

Exhibit 32.4 : Free Cash Flow

Gross cash flow
(=NOPLAT +depreciation)
Gross investment
(= increase/(decrease in net current
assets + capital expenditure)
Free cash flow
Exhibit 32.5-

45

45

C NOPLAT:[(A)-(B)]

53
-8

40
5

D NET INVESTMENT[
E FREE CASH FLOW:[(C)-(D)]
ROIC=NOPLAT/INVESTED
F CAPITAL
Note that the invested capital for year 4 after ad
million
Terminal steady growth rate, g
Target capital structure, i.e. D:E
Cost of debt
Cost of equity
WACC

Cash Flow Available to Investors

Year 2
Free cash flow
-8
Add: After-tax non-operating cash flow
0
Cash flow available to investors
-8
After-tax interest expenses
Add: Cash dividend on equity and
preference capital
Add: Redemption of debt
Less: New borrowing
Add: Share buybacks
Less: Share issues
Add: Excess marketable securities
Less: After-tax income on marketable
securities
Financing flow

Year 3
5
4.8
9.8

9.6

12
0

12
0

19
0
30
20

15
0
0
5

0
-8

1.8
9.8

6 Tax shield on interest expense

Value of operations, PV(FCF)

Continuing
value,=FCF8(1+g)/(WACCg)
PV(CV)
Value of operations
Value of non-operating assets
VALUE OF MATRIX LIMITED

Exhibit 32.7
t and Loss account for Matrix Limited for five YearsProfit and Loss account
(Rs.in million)
4
5
6
7
8
270
320
360
400
440
3

273
144

322
173

360
193

400
218

440
245

47
22
18
231
42
13
29
15
14

59
26
20
278
44
16
28
15
13

67
29
21
310
50
18
32
15
17

70
32
23
343
57
19
38
16
22

77
35
25
382
58
18
40
16
24

90
105
161
356
266

90
127
177
394
294

90
151
192
433
324

90
356

100
394

109
433

Projected Balance Sheet

90
90
75
88
140
150
305
328
220
240
10
75
88
305
328

Exhibit 32.8
w Forecast for Matrix Limited for Five Years- Years 4
8
- The Explicit Forecast Period
( Rs.in million)

4
42
18
3
0
57

5
44
20
2
0
62

6
50
21
0
0
71

7
57
23
0
0
80

8
58
25
0
0
83

13

16

18

19

18

7.2

8.4

9.2

10

1.2
0
19

0.8
0
23.2

0
0
26.4

0
0
28.2

0
0
28

38

38.8

44.6

51.8

55

35
3

33
5.8

28
16.6

38
13.8

39
16

12.9%
11.8%
12.5% 13.1% 12.7%
vested capital for year 4 after adjustment is Rs.295

growth rate, g
ucture, i.e. D:E

10%
2
12.67%
18%
14.0%

=NPV(I56,H49:L49)

Rs.in million

34.78

=L49*(1+I52)/(I56-I52)
=L59/(1+I56)^L36
=L58+L60
=D29

Rs.in million
Rs.in million
Rs.in million
Rs.in million

439.7
228.3
#####
25.00

Rs.in million

#####

=L61+L62

Two Stage Growth Model

Base Year( Year 0) Information

Inputs for
rate
revenuesyears)
&
( Amounts in Rs.million) Growth
Length of
theinperiod(in
EBIT
Revenues
4,000

EBIT
Capital expenditure

as a
percentage
of revenues

Depreciation

12.5%
300

Growth rate in capital expenditure10%

Growth rate in depreciation
10%
Net working capital as a
percentage of revenue
30%

200

as a
percentage
Net working capital of revenues
Coroporate tax rate for all time
Paid up equity capitalRs.10 par
Market value of debt

High Growth rate period

5
10%

30%
40%
300
1,250

Cost of debt ( pre-tax)

Debt equity ratio
Risk-free rate
Market risk premium
Equity beta

15%
1

13%
6%
1.333

Exhibit 32.9
Forecasted FCF: Exotica Corporation

4400
550
330

4840
605
363

5324
665.5
399.3

(Rs.in million)
4
5
5856.40 6442.04
732.05
805.26
439.23
483.15

110

121

133.1

146.41

161.05

120
100

132
110

145.2
121

159.72
133.10

175.69
146.41

1
1 Revenues
2 EBIT
3 EBIT(1-t)
Capital
expendituredepreciation
4
Net
working
5 capital
6 FCF (3-4-5)

Cost of equity
WACC

High growth period

21.0%
15.0%

Present value of the FCF during the explicit forecast period

Present value of terminal value
The value of the firm

Stable
growth
period
19.00%
15.00%
=NPV(D27,C23:G23)
=H23/(E27-H4)/(1+D27)^G17
=H29+H30

Three Stage Growth Model

Base Year (Year 0 ) Information

(amounts in Rs.million)

High
Stable
Growth Transitio Growth
period n period period

Inputs for the

EBIT

250

Length of the period in years

Growth rate in revenues,EBIT,
depreciation and capital
expenditure
Decrease per year in the
growth rate of
revenues,EBIT,depreciation
and capital expenditure

Capital expenditure
Depreciation and
amortisation
Net working capital
as a percentage of
revenues
Tax rate for all time
to come

295

Net working capital as a

percentage of revenues

20%

20%

20%

240

Cost of debt( pre-tax)

15%

14%

12%

20%

Risk free rate

12%

11%

10%

40%

Market risk premium

Equity beta

6%
1.583

6%
1.1

6%
1.00

Revenues

During
Cost of equity

WACC

1,000

High growth period

=E40+E42*E41 21.50%
=I35/(I35+K35)*E39*(1B41)+K35/(I35+K35)*C4
5
14.00%

Transition period
=F40+F42*F41
=I36/(I36+K36)*F39*(1B41)+K36/(I36+K36)*E45
13.00%

25%

10%

3%

17.60%

Stable growth period

=G40+G42*G41
=I37/(I37+K37)*G39*(1B41)+K37/(I37+K37)*H45
16.00%

Exhibit 32.10
Forecasted FCF: Multiform Limited
Period
1
2
3
4
5
6
7
8
9
10

Growth rate EBIT(1-t)

25%
187.5
25%
234.4
25%
293.0
25%
366.2
25%
457.8
22%
558.5
19%
664.6
16%
770.9
13%
871.1
10%
958.2

Terminal value at the end of year 10

Present value of the terminal value

Capital expenditure
368.8
460.9
576.2
720.2
900.3
1098.3
1307.0
1516.1
1713.2
1884.6
=H61*(1+G36)/(F47-G36)
=F63/(1+B47)^A56/(1+D47)^(
A61-A56)

(amounts in Rupees million)

Depn.
NWC
300
250
375.00
312.5
468.75
390.6
585.94
488.3
732.42
610.4
893.55
744.6
1063.33
886.1
1233.46 1027.9
1393.81 1161.5
1533.19 1277.7

NWC
50
62.5
78.1
97.7
122.1
134.3
141.5
141.8
133.6
116.2

8996.87 million rupees

2536.24 million rupees

Value of the firm

=J62+F64

3512.61 million rupees

Free Cash Flow to Equity (FCFE) Model ( see para 32.11)

3

( Rs.in crore)
7
8

24

29

28

32

38

40

Fixed assets (net)

Investments

190
20

220
10

240

266

294

324

Net current assets

Debt
Preference

70
129

75
140

88
150

90
161

100
177

109
192

Profit after tax

Preference dividend

The FCFE forecast for the explicit period, years 4 through 8:

4
5
6
(Profit after tax - Preference
dividend )
29
28
32

38

40

- ( Capital expenditure Depreciation )

30

20

26

28

30

- (Change in net current assets)

13

10

+ ( New debt issue - debt

repayment )

11

10

11

16

15

-( Change in investment in
marketable securities)
-10
-10
0
0
0
FCFE
15
15
15
16
16
Cost of equity
18.27%
The constant FCFE growth
10%
rate after the explicit growth period
Equity value (at the end of year 3)
Formula used
Rs. 139.53 crores
=NPV(B86,C85:G85)+G85*(1+B87)/(B86-B87)/(1+B86)^(G79-B69)

Stable Growth Period

6%
is equal to
growth rate
in
depreciatio
n

30%

15%
2

12%
7%
1.0

(Rs.in million)
Terminal year
6828.56
853.57
512.14

115.96
396.19

398.59
2,188.70
2,587.29

million rupees
million rupees
million rupees

Equity

1.5

Transition
Period

Stable
Growth
Period

High
Growth
Period

Debt

Stable growth period

16.00%

7+K37)*G39*(137/(I37+K37)*H45
16.00%

n Rupees million)
FCF
68.8
85.9
107.4
134.3
167.8
219.4
279.4
346.5
418.1
490.7
million rupees
million rupees

WACC
#####
#####
#####
#####
#####
#####
#####
#####
#####
#####
Sum=

Presen
t value
60.31
66.13
72.51
79.51
87.18
100.85
113.66
124.72
133.18
138.34
976.37

million rupees

Exhibit 34.3

Balance Sheet of Alpha Company and Beta Company

Part A: Before MergerPart B: After Merger
Liabilities

Alfa
Company

Share capital (10 par) 4000

Capital reserve
Share premium
2000
General reserve
5000
P&L account
1000
Loan funds
4000
Current liabilities
2000
and provisions
Assets
Net fixed assets
Investments
Current assets
Miscellaneous
expenditure

Par
value
of
shares of each
company

500
1000
500
2500
1500

400

1900

2500

2000

6000

5000

1500

1000

6500

6400

3500

3600

18000

7000

25000

24500

7000
3000
7000
1000

3000
500
3000
500

10000

10200

3500

3400

10000

9900

1500

1000

25000

24500

18000
Share swap ratio
No.of Alfa shares

Beta
Pooling
Purchase
Company Method
Method
4600
4600
1000

7000

for Beta shares

10

On revaluation under the

'purchase method', the revised
values are:
Net fixed assets
3200
Investments
400
Current assets
2900
Current liabilities
1600
Loan funds
2400

After the merger the

capital of Alfa will
increase by

600

Exhibit 33.5
Determination of Value Created by a New Strategy
------------------------------------------ -------------- -------------- -------------- -------------- -------------- -------------- -------------Income Statement Projections
Current
Residual
Value
1
2
3
4
5
value
(Year 0)
5+
------------------------------------------ -------------- -------------- -------------- -------------- -------------- -------------- -------------Sales
1000
1100
1210
1331
1464
1611
1611
Gross Margin
250
275
303
333
366
403
403
S & G.a.
100
110
121
133
146
161
161
Profit Before Tax
150
165
182
200
220
242
242
Tax
60
66
73
80
88
97
97
-------------- -------------- -------------- -------------- -------------- -------------- -------------Net Profit
90
99
109
120
132
145
145
-------------- -------------- -------------- -------------- -------------- -------------- -------------Balance Sheet Projections
Fixed Assets
300
330
363
399
439
483
483
Current Assets
200
220
242
266
293
322
322
-------------- -------------- -------------- -------------- -------------- -------------- -------------Total Assets
500
550
605
666
732
805
805
Equity
500
550
605
666
732
805
805
-------------- -------------- -------------- -------------- -------------- -------------- -------------Cash Flow Projections
Profit After Tax
99
109
120
132
145
145
Depreciation
30
33
36
40
44
44
Capital Expenditure
60
66
73
80
88
44
Increase in Current Assets
20
22
24
27
29
0
-------------Operating Cash Flow
49
54
59
65
72
145
-------------Present Value Factor
0.862
0.743
0.641
0.552
0.476
PV of Operating Cash Flow
42
40
38
36
34
------------------------------------------ -------------- -------------- -------------- -------------- -------------- -------------- -------------PV of Operating Cash Flow Stream
190
Residual value
905
PV of Residual Value
431
Total Share Holder Value
621
Pre-Strategy VAlue
563
Value of Strategy
59
------------------------------------------ -------------- -------------- -------------- -------------- -------------- -------------- -------------ASSUMPTIONS
Annual rate of increase in Sales
Gross Margin
S and G.A:
Fixed Assets
Current Assets
Discount rate for Present Value
Tax rate

10.00%
25.00%
10.00%
10.00%
10.00%
16.00%
40.00%
Exhibit 33.9

Depreciation Charge and Capital Charge under Alternative Methods

Cost of the equipment
Economic life(in years)
Cost of capital
Salvage value

100,000
5
15%
0
Part A: Straight Line Method
1
2
3
Capital
100,000
80,000
60,000
Depreciation
20,000
20,000
20,000
Capital charge
15,000
12,000
9,000
Sum
35,000
32,000
29,000
Part B: Sinking Fund Method
Capital
100,000
85,168
68,112
Depreciation
14,832
17,056
19,615
Capital charge
15,000
12,775
10,217
Sum(Annuity)
29,832
29,832
29,832
=PMT($B$56,$B$55,-($B$54-$B$57))

4
40,000
20,000
6,000
26,000

5
20,000
20,000
3,000
23,000

48,497
22,557
7,275
29,832

25,940
25,940
3,891
29,832

Exhibit 33.11
Free Cash Flow
Assumptions:
Growth rate in assets & revenues in the first period
Length of the first growth period in years
Growth rate in assets & revenues in the second period
Length of the second growth period in years
Growth rate in assets & revenues after the second growth period
Ratio of net profit after tax to net assets
Opportunity cost of capital for the proposed acquisition

20%
3
12%
2
8%
0.12
11%

Free Cash Flow

( Rs. in million)
Year
1
2
3
4
5
6
7
Asset value( Beginning)
50.00
60.00
72.00
86.40
96.77 108.38 117.05
Net operating profit after taxes
6.00
7.20
8.64
10.37
11.61
13.01
14.05
Net investment
10.00
12.00
14.40
10.37
11.61
8.67
9.36
Free cash flow
-4.00
-4.80
-5.76
0.00
0.00
4.34
4.68
Growth rate
20%
20%
20%
12%
12%
8%
8%
Value of the acquisition
=NPV(E10,B17:G17)+G17*(1+E8)/(E10-E8)/(1+E10)^G13

Year
Beginning capital
NOPAT
Cost of capital
Capital charge
EVA
Growth rate
PV of the EVA Stream
EVA Valuation

Exhibit 33.12
EVA Projection
1
2
3
4
5
50.00
60.00
72.00
86.40
96.77
6.00
7.20
8.64
10.37
11.61
11%
11%
11%
11%
11%
5.50
6.60
7.92
9.50
10.64
0.50
0.60
0.72
0.86
0.97
20%
20%
20%
12%
12%
=NPV(E10,B28:G28)+H28/(E10-E8)/(1+E10)^G23
=B24+H30

6
108.38
13.01
11%
11.92
1.08
8%

7
117.05
14.05
11%
12.88
1.17
8%
24.05
74.05

8
126.41
15.17

8%
74.05

International Capital Budgeting: Para 37.5 Illustration

Current spot exchange rate of USD
in Rupees
Risk-free rate of interest in India
Risk-free rate of interest in the US
Required rupee return

0
1
2
3
4
Home Currency Approach:
NPV in rupees(million)

45
11%
6%
15%

Expected
exchange
Cash flow in rate(Rs per
Year USD(million)
USD)
-100
45.00
30
47.12
40
49.35
50
51.67
60
54.11

Foreign Currency Approach

Risk premium implicit in the riskadjusted rupee return
Risk -adjusted dollar rate
NPV in million dollars
Rupee NPV of the project(Rs.million)

Cash
flow in
rupees(
million)
-4500
1413.7
1973.8
2583.7
3246.6

1,776.84 =NPV(B6,D9:D12)+D8

0.036 =(1+B6)/(1+B4)-1
0.0982 =(1+B5)*(1+B16)-1
39.485=B8+NPV(B17,B9:B12)
1776.8
=B18*B3