BALANCE SHEET of A ltd. AS ON 31.03.

2019

Liabilities Value Assets Value

Shareholder Funds 250 Net Fixed 400
Assets
Net
Equity Capital ( 10 crore shares 100 Working 100
of Rs 10 each) Capital
Reserves and Surplus 150
Loan Funds Rate 250
Total 500 Total 500

WACC Wd 50% Kd 9%
We 50% Ke 16%

11.00%

1 2 3 4
NOPAT 60 72 86.4 103.68
20% 20% 20%
Asset 500 600 720 864
Net Investment 100 120 144 103.68

Cash Flow -40 -48 -57.6 0

Preent Value -36.04 -38.96 -42.12 0.00

Total Value
Loan Funds Rate
Equity Value
 The return on invested capital (NOPAT/Invested Capital) of A
ltd. is expected to be12 %. The Effective tax rate is 33.33%.
Debt/Equity=1:1, Kd=9% Ke=16%.The growth rate in assets,
Revenue and NOPAT will be 20% for first 3 years, 12% for next 3
years and 8% thereafter. Calculate the intrinsic value of Equity
Share.

Tax 33%

5 6 7 7
116.1216 130.0562 145.6629 157.3159698432
12% 12% 12% 8%
967.68 1083.802 1213.858 1310.96641536
116.1216 130.0562 97.10862

0 0 48.55431 1747.86782708865

0.00 0.00 23.39 841.87

748.14
250
498.14

IV 49.8143436119928
 EARNINGSSS MULTIPLIER APPROACH

EPS 1.4 Growth Value

Dividend 0.49 9.75% 21.77778
ROE 15% 10% 6.50% 8.909091
EPS 1 ( 1  b )
ke   br (g  br)
Require P0
EPS 1
Return 12% 
P0
(b  0) 12% 7.80% 11.66667
DPR 0.35 14% 9.10% 16.89655
b 0.65 16% 10.40% 30.625
groth(br) 9.75% 20% 13.00% -49
stock
Value 21.777777778

Calculate the growth rate and stock value as the ROE changes
 Given the long-run gFCF = 6%, and firm discount rate of 10%, use the cah flow model to find the firm’s
value, if FCF for year 1, 2 and 3 are -5, 10 and 20 respectively. If the firm has $40 million in debt and has 10
million shares of stock, what is the firm’s stock value per share?

Disccount
10%
Rate
Growth 6%
1 2 3 3
FCF -5 10 20
PVFCF -4.55 8.26 15.03 18.75 530
398.20
Total value of Firm 416.94
Debt 40
Value of Equity 376.94
IV 37.69421