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    Test 4 Valuation

    Uploaded by

    Irfan Shaikh
    The document provides information about XYZ Ltd expected to have high growth for 4 years followed by stable growth. It gives revenue, EBIT, capital expenditure, depreciation figures for base year and growth rates for high and stable growth periods. It also provides risk free rate, equity beta, market risk premium, pre tax cost of debt and debt equity ratio. The key steps to value the firm are: 1) Calculate WACC for high growth and stable growth periods 2) Forecast cash flows for 4 high growth years and terminal year 3) Discount future cash flows to calculate PV and sum to get firm value The value of the firm is the sum of PV of future cash flows for 4 years

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    Test 4 Valuation

    Uploaded by

    Irfan Shaikh
    20 views4 pages
    The document provides information about XYZ Ltd expected to have high growth for 4 years followed by stable growth. It gives revenue, EBIT, capital expenditure, depreciation figures for base year and growth rates for high and stable growth periods. It also provides risk free rate, equity beta, market risk premium, pre tax cost of debt and debt equity ratio. The key steps to value the firm are: 1) Calculate WACC for high growth and stable growth periods 2) Forecast cash flows for 4 high growth years and terminal year 3) Discount future cash flows to calculate PV and sum to get firm value The value of the firm is the sum of PV of future cash flows for 4 years

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    The document provides information about XYZ Ltd expected to have high growth for 4 years followed by stable growth. It gives revenue, EBIT, capital expenditure, depreciation figures for base year and growth rates for high and stable growth periods. It also provides risk free rate, equity beta, market risk premium, pre tax cost of debt and debt equity ratio. The key steps to value the firm are: 1) Calculate WACC for high growth and stable growth periods 2) Forecast cash flows for 4 high growth years and terminal year 3) Discount future cash flows to calculate PV and sum to get firm value The value of the firm is the sum of PV of future cash flows for 4 years

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    20 views4 pages

    Test 4 Valuation

    Uploaded by

    Irfan Shaikh
    The document provides information about XYZ Ltd expected to have high growth for 4 years followed by stable growth. It gives revenue, EBIT, capital expenditure, depreciation figures for base year and growth rates for high and stable growth periods. It also provides risk free rate, equity beta, market risk premium, pre tax cost of debt and debt equity ratio. The key steps to value the firm are: 1) Calculate WACC for high growth and stable growth periods 2) Forecast cash flows for 4 high growth years and terminal year 3) Discount future cash flows to calculate PV and sum to get firm value The value of the firm is the sum of PV of future cash flows for 4 years

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 4

    Question 1

    (a) Following informations are available in respect of XYZ Ltd. which is expected to grow at a higher rate for 4 years after wh
    Base year information:

    Revenue
    EBIT
    Capital expenditure
    Depreciation
    Information for high growth and stable growth period are as follows:
    High Growth
    Growth in Revenue & EBIT 20%
    Growth in capital expenditure and depreciation 20%
    Risk free rate 10%
    Equity beta 1.15
    Market risk premium 6%
    Pre tax cost of debt 13%
    Debt equity ratio 1:1
    For all time, working capital is 25% of revenue and corporate tax rate is 30%.
    What is the value of the firm? (10 Marks)

    Sol. High Growth


    Ke = 16.900%
    Kd (after tax) = 9.100%

    Cal. of WACC Weights


    Equity 50%
    Debt 50%
    Total

    High Gro

    1
    Revenue 2400
    EBIT 360
    Tax Rate = 30%
    Depreciation 240
    CAPEX 336
    WCI (25% of Change in Revenue) 100
    FCFF 56
    1.13 PVF@13% 0.884955752212
    PVCF 49.55752212389
    at a higher rate for 4 years after which growth rate will stabilize at a lower level:

    2000
    300
    280 CAPEX
    200 Dep

    Growth Stable Growth


    10%
    Capital expenditure are offset by depreciation
    9%
    1
    5%
    12.86%
    2:3

    High Growth Stable Growth


    Ke = 14.000%
    Kd (after tax) = 9.002%

    K (cost) WACC Cal. of WACC Weights K (cost) WACC


    16.900% 8.4500% Equity 0.60 14.000% 8.4000%
    9.100% 4.5500% Debt 0.40 9.002% 3.6008%
    13.0000% Total 12.0008%

    High Growth Stable Growth


    Years
    2 3 4 Terminal Value
    2880 3456 4147.2 4561.92
    432 518.4 622.08 684.288 FCFF5 =

    288 345.6 414.72 638.6688


    403.2 483.84 580.608 638.6688
    120 144 172.8 103.68 PV of TV =
    67.2 80.64 96.768 375.3216 PV of TV =
    0.783146683374 0.693050162278 0.613318727679 PV of TV =
    52.62745712272 55.88756508607 59.34962664008
    375.3216
    FCFF5/(WACC-g)
    12507.38

    7671.013 + PV of FCFF for 4 years


    7671.013 + 217.4222
    7888.435
    Ques.2

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