try to solve it-4

CA Final 603 views 5 replies

Free cash flow

Year 1-369.10, 2-304.60, 3-289.50, 4-749, 5-906.6, 6-951.50

 

Market value of equity=850 lakhs

Market value of debt=340 lakhs

 

Cost of equity=20%

Cost of debt=14%

 

WACC=20%*850/1190+14%*340/1190=18.285%

 

Computation of terminal value:

951.5*1.16/ (0.1828-0.16) =Rs. 48409.65 lakh

 

Query1.  What is the formula used for calculating the terminal value colored above?

Query2.  How to calculate the value of the company from the details provided above?

Replies (5)

yaar.... question mein kya kiya hai... kuch samaj mein nahi aata....

teriminal value= last expected cash flow  * constant growth rate at perpetuity ( i.e. company expect the cash flows to grow at 16% forever at 6th yr ) / ( discount rate -  growth rate)

Discount rate is the weighted avg cost of capital

Total value of company = Present Value of Free Cash Flows discounted at 16% + Teriminal value

Thanks for reply.  But, there is no growth rate is given in the question. 

helpppppp


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