Harish (CS Executive) (386 Points)
26 November 2009
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?
CA. Megha Topiwala
(Job)
(1534 Points)
Replied 26 November 2009
yaar.... question mein kya kiya hai... kuch samaj mein nahi aata....
Rakesh Kumar
(B.Com ( H ) Pursuing CA Final )
(327 Points)
Replied 26 November 2009
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
Rakesh Kumar
(B.Com ( H ) Pursuing CA Final )
(327 Points)
Replied 26 November 2009
Total value of company = Present Value of Free Cash Flows discounted at 16% + Teriminal value
Harish
(CS Executive)
(386 Points)
Replied 26 November 2009
Thanks for reply. But, there is no growth rate is given in the question.
CAclubindia
