Valuation Of A Firm

Two stage growth Model

Value of the Frm=Present Value of the FCf during the high growth phase+present value of the terminal value

Base year Informatio n Revenues EBIT 8% of revenures Capex Depn WC as a % of Revenues Corporate tax rate Paid up equity Capital Market value of Debt

Rs in Mn 4000 500 300 200 30% 40% 300

1250

Input for High Growth Period Length of Growth phase g for Revenues,depn,EBI T,and capex

5

10%

1200

1320

120

WC as % of Revenues cost of Debt D=1,E=1 Risk free Rate

30% 15 %pre tax 31-Dec 13%

Input for stable Growth Period

Years

1 4400 550

2 4840 605

330

363

Sub. (Capex4 Depn) WC

110 1320

121 1452

change 5 in WC 6 FCF

120 100

132 110

1 Revenues 2 EBIT Nopat=E 3 BIT(1-t)

High Growth Period=

Stable Growth Period =

Re=Rf+b(Rm-Rf) 0.21

19%

Now,Present Value of Terminal Value (FCFF6/(WAAC-g))*PV = of 5th

Therefore ,Value of the firm =

Pv of FCF+PVof Terminal value

ue of the terminal

0

Market Risk Premium Equity Beta

6% 1.33

expected g for Revenues,depn, EBIT,and capex 6% WC as % of Revenues 30% cost of Debt 15 %pre tax D=2,E=3 Risk free Rate 12% Market Risk Premium 7% Equity Beta 1.0

1200

3 5324 665.5

4 5 Terminal Year 5856.4 ### ### 732.05 805.26 853.57

399.3

439.23 483.15 512.14

133.1 1597.2 145.2 121

146.41 1932.6 161.05 1756.92 1

7

###

159.72 175.69 115.96 133.1 146.41 396.19

$398.58

Re=Rf+b(Rm-Rf)

WAAC= Re*We+Wd*Rd(1-t) 0.15 15%

21.00%

19.00%

6/(WAAC-g))*PV of 5th Year 4402.06

0.15

2188.6

$2,587.19

15%

Revenues= EBIT= Capex= Depn= WC@ 20% t= Growth Phase0-5 Years revenues,de pn,EBIt,Cape x are increasing WC @20% Cost of Debt D:E Rf Rm-Rf Beta WACC=

Rs 1000 Mn Rs250 Mn Rs 295 Rs.240 40%

5 Years

25%

25.00%

15% 1.5 12% 6% 1.58 14 14.00% WAAC=Ke*We+Kd*Wd

5-10 Years From 510Years growth Rate rate is declinig by Transition Phase 3% per Year WC 20% of Revenues D:E 1:1 Pretax cost of Debt 14% Rf 11% Rm-Rf 6% Equity Beta 0.5 WAAC 13 13.00%

Stable

Revenues,E BIT,Capex,D epn

10%

0.10

WC D=0,E=1 Pretax cost of Debt Rf Rm-Rf Equity Beta WAAC

20% 12% 10% 6% 0.1 0.16

16%

2.7

1.7

99.97 250

Period

Growth Rate EBIT(1-t)Capex 1 25% 187.5 368.75 2 25% 234.38 460.94 3 25% 292.97 576.17 4 25% 366.21 720.21 5 25% 457.76 900.27 6 22% 558.47 1098.33 7 19% 664.58 1307.01 8 16% 770.91 1516.13 9 13% 871.13 1713.23 10 10% 958.25 1884.55

NOW,

Terminal Value=

FCFF11/(WAAC-g)

Present Value of Terminal Value

There fore value of the Firm Present value of the firm in Growth Per Present value of the firm in transition P Present Value of Terminal value

Value of the firm

C=Ke*We+Kd*Wd

824.33

Dep

change in Wc

WC 300 375 468.75 585.94 732.42 893.55 1063.33 1233.46 1393.81 1533.19

FCFF11=

250 312.5 390.63 488.28 610.35 744.63 886.11 1027.89 1161.51 1277.66

50 62.5 78.13 97.66 122.07 134.28 141.48 141.78 133.63 116.15

539.81

1/(WAAC-g)

8996.87 2241.3

e value of the Firm of the firm in Growth Period of the firm in transition Period of Terminal value

8607.34

365.62 610.73 2241.3

FCFF

D/E 68.75 85.94 107.42 134.28 167.85 219.42 279.42 346.47 418.09 490.74

494.6

ß 1.5 1.5 1.5 1.5 1.5 1.0 1.0 1.0 1.0 1.0

1.58 1.58 1.58 1.58 1.58 1.10 1.10 1.10 1.10 1.10

3217.64

100.74 22.01

WAAC PV 14.00% 14.00% 14.00% 14.00% 14.00% 13.00% 13.00% 13.00% 13.00% 13.00%

60.31 66.13 72.51 79.5 87.17 100.85 113.65 124.71 133.18 138.34