Excels for 8th Ed
133
Exhibit 3.2 Balance Sheet of Horizon Limited as on March 31, 20X1 A. Account Form (Rs. in million) --------------------- ---------- --------- --------- ----------------- --------- Liabilities 20X1 20X0 Assets 20X1 --------------------- ---------- --------- --------- ----------------- --------- Share Capital 150 150 Fixed Assets 330 * Equity 150 * Preference 0 Reserves and surplus 112 106 Investments 24 Secured Loans 143 131 Current Assets, 234 Loans & advances Unsecured Loans 69 25 Miscellaneous Deferred tax liability 14 Exp. and losses 5 Current Liabilities 105 81 and provisions --------- --------- --------- 593 493 593 --------------------- ---------- --------- --------- ----------------- --------- B. Report Form --------------------- ---------- --------- --------- ----------------- --------- 20X1 --------------------- ---------- --------- --------- ----------------- --------- I. Sources of funds (1) Shareholders' funds 262 (a) Share Capital 150 (b)Reserves and surplus 112 --------- (2) Loan funds 212 (a) Secured Loans 143 (b) Unsecured Loans 69 --------- --------- (3) Deferred tax liability 1414141414 488 II. Application of funds (1) Fixed Assets 330 (2) Investments 24 (3) Current assets, loans and advances 234 --------- (4) Miscellaneous expenditures and losses 555555555 593 Less:Current liabilities & provisions 105 --------- Net current assets 488 --------- 488 --------------------- ---------- --------- --------- ----------------- --------- Exhibit 3.3 Balance Sheet of Horizon Limited as on March 31, 20X1 A Detailed Version (Rs. in million) --------------------- ---------- --------- --------- ----------------- --------- Liabilities 20X1 20X0 Assets 20X1
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Transcript of Excels for 8th Ed
Exhibit 3.2 Balance Sheet of Horizon Limited as on March 31, 20X1
A. Account Form (Rs. in million)--------------------- ---------- --------- --------- ----------------- ---------
Liabilities 20X1 20X0 Assets 20X1--------------------- ---------- --------- --------- ----------------- ---------Share Capital 150 150 Fixed Assets 330 * Equity 150 * Preference 0Reserves and surplus 112 106 Investments 24Secured Loans 143 131 Current Assets, 234
Loans & advancesUnsecured Loans 69 25 MiscellaneousDeferred tax liability 14 Exp. and losses 5Current Liabilities 105 81and provisions
--------- --------- ---------593 493 593
--------------------- ---------- --------- --------- ----------------- ---------B. Report Form
--------------------- ---------- --------- --------- ----------------- ---------20X1
--------------------- ---------- --------- --------- ----------------- ---------I. Sources of funds (1) Shareholders' funds 262 (a) Share Capital 150 (b)Reserves and surplus 112
--------- (2) Loan funds 212 (a) Secured Loans 143 (b) Unsecured Loans 69
--------- --------- (3) Deferred tax liability 141414141414141414
488II. Application of funds (1) Fixed Assets 330 (2) Investments 24 (3) Current assets, loans and advances 234
---------(4) Miscellaneous expenditures and losses 555555555
593 Less:Current liabilities & provisions 105
--------- Net current assets 488
---------488
--------------------- ---------- --------- --------- ----------------- ---------
Exhibit 3.3 Balance Sheet of Horizon Limited as on March 31, 20X1
A Detailed Version (Rs. in million)--------------------- ---------- --------- --------- ----------------- ---------
Liabilities 20X1 20X0 Assets 20X1
--------------------- ---------- --------- --------- ----------------- ---------Share capital 150 150 Fixed assets Equity 150 150 (net) 330 Preference Gross block 500Reserves & surplus 112 106 Acc. depn 170Secured loans 143 131 Investments 24 Term loans 70 58 Current assets, 234 Cash credit 73 73 loans &Unsecured loans 69 25 advances Bank credit 25 25 Cash & bank 10Inter-corporate 44 0 Debtors 114 deposit Inventories 105Deferred tax liability 14 Advances 5
105 81 Misc. exp. 5 Trade credit 75 60 & losses Advances 20 13 Provisions 10 8
---------- --------- ---------593 493 593
--------------------- ---------- --------- --------- ----------------- ---------Exhibit 3.4
Profit and Loss Account of Horizon Limited for the Year Ending on March 31, 20X1 (Rs. in million)
--------------------- ---------- --------- --------- ----------------- ---------Income Sales 701
Expenditure Material and other expenditure 582 Interest 21 Depreciation 30 Profit before tax 68 Provision for tax 34Profit after tax 34Prior period adjustments 8 7Amount available for approprition 42 49Appropriations 35 40Balance carried forward 7 9
--------------------- ---------- --------- --------- ----------------- ---------
Exhibit 3.5Profit and Loss Account of Horizon Limited for the
Year Ending on March 31, 20X1 (Rs. in million)--------------------- ---------- --------- --------- ----------------- ---------
--------------------- ---------- --------- --------- ----------------- ---------Net Sales 701Cost of goods sold 552 Stocks 421 Wages and salaries 68 Other manufacturing expenses 63
---------
Current liabilities & provisions
20X1
Gross profit 149Operating expenses 60 Depreciation 30 General administration 12 Seling 18
---------Operating profit 89Non-operating surplus/deficit 0Earnings before interest and tax 89Interest 21Profit before tax 68Tax 34Profit after tax 34Prior period adjustments 8Amount available for approprition 42Appropriations 35Balance carried forward 7
--------------------- ---------- --------- --------- ----------------- ---------
Exhibit 3.6Changes in Balance Sheet Items
Part A. Changes in Balance Sheet Items
Owners Equity and LiabilitiesShare Capital Equity Capital 150 150 0 Preference Capital 0 0 0Reserves and Surplus 112 106 6Secured Loans Term Loans 70 58 12 Cash Credit 73 73 0Unsecured Loans Bank Credit 25 25 0
44 0 44Deferred tax liability 14 14
Trade Credit 75 60 15 Advance Taken 20 13 7 Provisions 10 8 2Total 593 493 100
AssetsFixed Assets (Net) 330 322 8Investments 24 10 14
Cash and Bank 10 6 4 Debtors 114 68 46
Mar 31 20X1
Mar 31 20X0
Increase/Decrease
Inter Corporate Deposit
Current Liabilities and Provisions
Current Assets, Loans & Advances
Inventories 105 72 33 Advances 5 10 -5
5 5 0
Exhibit 3.9Cash Flow Statement for Horizon Limited for the Period 1.4.20X0 to 31.3.20X1
(Rs in million)
68 Adjustments forInterest paid 21 Depreciation 30
119 Adjustments Debtors (46)Inventories (33)Advances 5 Trade credit 15 Advances 7 Provisions 2
69 Income tax paid 34
35 Extraordinary item 0
35
(38)
(38)
12
44 Interest paid (21)Dividend paid (28)
7
Miscellaneous Expenditure and Losses
(A) Cash Flow from Operating ActivitiesNet profit before tax& extraordinary items
Operating profit before working capital changes
Cash generated from operations
Cash flow before extraordinary items
Net cash flow from operating activities
(B) Cash flow from investing activitiesPurchase of fixed assetsNet cash flow from investing activities
( C) Cash flow from financing activitiesProceeds from secured loansProceeds from unsecured loans
Net cash flow from financing activities
4
6
10
(D) Net Increase in Cash and Cash Equivalents: (A) + (B) + ( C)Cash and cash equivalents as on 1.04.20x0Cash and cash equivalents as on 1.04.20x1
Exhibit 3.2 Balance Sheet of Horizon Limited as on March 31, 20X1
--------20X0
--------322
10156
5
--------493
--------
--------20X0
--------
256
156
--------141414141414141414
412
32210
156--------55555555
49381
--------412
--------412
--------
Exhibit 3.3 Balance Sheet of Horizon Limited as on March 31, 20X1
A Detailed Version (Rs. in million)--------
20X0
--------
32246214010
156
6687210
5
--------493
--------Exhibit 3.4
Profit and Loss Account of Horizon Limited for the Year Ending on March 31, 20X1 (Rs. in million)
--------
--------
Exhibit 3.5Profit and Loss Account of Horizon Limited for the
Year Ending on March 31, 20X1 (Rs. in million)--------
--------623475
20X0
14849
996
10522834142749409
--------
Exhibit 3.6Changes in Balance Sheet Items
Part A. Changes in Balance Sheet Items
14 Deferred 14 Deferred 14 Deferred 14 Deferred
Exhibit 3.9
14 Deferred 14 Deferred 14 Deferred 14 Deferred 14
Deferred 14 Deferred 14 Deferred 14 Deferred 14 Deferred
14 Deferred 14 Deferred 14 Deferred 14 Deferred 14
Deferred 14 Deferred 14 Deferred 14 Deferred 14 Deferred
14 Deferred 14 Deferred 14 Deferred 14 Deferred 14
Deferred 14 Deferred 14 Deferred 14 Deferred 14 Deferred
14 Deferred 14 Deferred 14 Deferred 14 Deferred 14
Deferred 14 Deferred 14 Deferred 14 Deferred 14 Deferred
14 Deferred 14 Deferred 14 Deferred 14 Deferred 14
Deferred 14 Deferred 14 Deferred 14 Deferred 14 Deferred
14 Deferred 14 Deferred 14 Deferred 14 Deferred 14
Deferred 14 Deferred 14 Deferred 14 Deferred 14 Deferred
14 Deferred 14 Deferred 14 Deferred 14 Deferred 14
Deferred 14 Deferred 14 Deferred 14 Deferred 14 Deferred
14 Deferred 14 Deferred 14 Deferred 14 Deferred 14
Deferred 14 Deferred 14 Deferred 14 Deferred 14 Deferred
14 Deferred 14 Deferred 14 Deferred 14 Deferred 14
Deferred 14 Deferred 14 Deferred 14 Deferred 14 Deferred
14 Deferred 14 Deferred 14 Deferred 14 Deferred 14
Deferred 14 Deferred 14 Deferred 14 Deferred 14 Deferred
14 Deferred 14 Deferred 14 Deferred 14 Deferred 14
Deferred 14 Deferred 14 Deferred 14 Deferred 14 Deferred
14 Deferred 14 Deferred 14 Deferred 14 Deferred 14
Deferred 14 Deferred 14 Deferred 14 Deferred 14 Deferred
14 Deferred 14 Deferred 14 Deferred 14 Deferred 14
Deferred 14 Deferred 14 Deferred 14 Deferred 14 Deferred
14 Deferred 14 Deferred 14 Deferred 14
Exhibit 4.1 HORIZON Ltd:Profit and Loss Account for the Year
31st March 20X1 (Rs. million)---------------------------------- - ------------- ----------
20X1---------------------------------- - ------------- ----------Net Sales 701Cost of Goods Sold 552 Stocks 421 Wages and Salaries 68 Other Manufacturing Expenses 63Gross Profit 149Operating Expenses 60 Depreciation 30 General Administration 12 Selling 18Operating Profit 89Non-operating Surplus/Deficit 0Earnings Before Interest and Tax 89Interest 21Profit Before Tax 68Tax 34Profit After Tax 34Dividends 28Retained Earnings 6Per Share Data (in Rupees) Earnings per Share 2.27 Dividend per Share 1.87 Market Price Per Share 21.0 Book Value per Share 17.47 __________________________________ _ _____________ __________
Exhibit 4.2 HORIZON Ltd: BALANCE SHEET AS ON 31, March 20X1
(Rs. Million)---------------------------------- - ------------- ----------
20X1---------------------------------- - ------------- ----------
I. Shareholder's Funds 262.0 (a) Share Capital 150.0 (b) Reserves and Surplus 112.0
Loan FundsSecured Loans 143.0 (i) Due after one year 108.0
(ii)Due within one year 35.0 Unsecured Loans 69.0 (i) Due after one year 29.0 (ii)Due within one year 40.0 Deferred tax liability 14
----TOTAL 488.0
----
II. Application of fundsFixed Assets (net) 330.0 Investments 24.0 (a) Longterm Investments 21.0 (b) Current Investments 3.0 Current Assets, Loans and Advances 234.0 Inventories 105.0 Debtors 114.0 Cash and Bank 10.0 Loans and Advances 5.0
105.0 Net Current Assets 129.0
5.0 ----
TOTAL 488.0 ----
Exhibit 4.3Comparision Ratios of Horizon Limited with Industry Average
---------------------------------- - ------------- ----------RATIO FORMULA HORIZON
Ltd.---------------------------------- - ------------- ----------LIQUIDITY
* Current Ratio 1.32
* Acid-test Ratio 0.73
* Cash Ratio 0.07
Less:Current Liabilities and Provisions
Miscellaneous expenditures & losses
Cur. Assets/ Cur. Liabilities
(Quick Asts./Cur. Liabilities)
(Cash and Bank Balances+Current Investments)/ (Current Liabilities)
LEVERAGE * Debt-Equity Ratio Debt/Equity 0.81
* Debt-Assets ratio Debt/Assets 0.43
* Int. Coverage Ratio EBIT/Interest 4.24
Modification of the above 5.67
* Fixed Charges Coverage Ratio 0.70
TURNOVER
* Inv. Turnover Ratio 6.24
* Debtors' Turnover Ratio 7.70
47.38
* Fixed Assets Turnover Ratio 2.15
* Total Assets Turnover Ratio 1.56
PROFITABILITY
* Gross Profit Margin Ratio 21.26%
* Net Profit Margin Ratio 4.85%
* Return on Assets 7.56%
(Variant of the above) 12.22%
(EBIT+ Depreciaiton/ Debt Interest(EBIT+Depreciation)/ Int+(loan Repayment/(1-TaxRate))
Cost of Goods Sold/Average InventoryNet Credit Sales/Average Accounts Receivable
* Average Collection Period (days)
Receivables/ Average Sales Per Day
Net Sales/Fixed Assets
Net Sales/Total Assets
Gross Profit/Net Sales
Net Profit/Net SalesNet Income(Profit)/ Average AssetsNet Income(Profit)+ Interest/ Average Assets
* Earnings Power 19.78%
* Return on Capital Employed 9.89%
* Return On Equity 13.13%
VALUATION
* Price-Earnings ratio 9.26
* Yield 14.33%
* Market Value to Book Value Rati 1.20
---------------------------------- - ------------- ----------Exhibit 4.7
Part A: Profit and Loss AccountRegular(Rs.in crore) Common Size(%)20X0 20X1 20X0
Net sales 623 701 100Cost of goods 475 552 76Gross profit 148 149 24PBIT 105 89 17Interest 22 21 4PBT 83 68 13Tax 41 34 7PAT 42 34 7
Part B: Balance SheetShareholders' funds 256.0 262.0 62Loan funds 156.0 212.0 38Deferred tax liability 0 14 0Total 412.0 488.0 100Fixed assets 322.0 330.0 78Investments 10.0 24.0 2Net current assets 75.0 129.0 18Miscellaneous expenditures & losses 5.0 5.0 1Total 412.0 488.0 100
Exhibit 4.8
EBIT/Average Total Asets
EBIT(1-T)/ Average Total Assets
Equity Earnings/Average Equity
Market Price per Share/ Earnings per Share
(Dividend+Price Change)/
Initial Price
Market Price per Share/ Book Value per Share
Part A: Profit and Loss AccountRegular(Rs.in crore) Common Base Year20X0 20X1 20X0
Net sales 623 701 100Cost of goods 475 552 100Gross profit 148 149 100PBIT 105 89 100Interest 22 21 100PBT 83 68 100Tax 41 34 100PAT 42 34 100
Part B: Balance SheetRegular(Rs.in crore) Common Base Year20X0 20X1 20X0
Shareholders' funds 256.0 262.0 100Loan funds 156.0 212.0 100Deferred tax liability 0 14 100Total 412.0 488.0 100Fixed assets 322.0 330.0 100Investments 10.0 24.0 100Net current assets 75.0 129.0 100Miscellaneous expenditures & losses 5.0 5.0 100Total 412.0 488.0 100
Exhibit 4.1 HORIZON Ltd:Profit and Loss Account for the Year
31st March 20X1 (Rs. million)-----------
20X0-----------
6234753705550
14849261112996
105228341422715
2.801.8020.0
17.07 ___________
Exhibit 4.2 HORIZON Ltd: BALANCE SHEET AS ON 31, March 20X1
(Rs. Million)-----------
20X0-----------
256.0 150.0 106.0
131.0 90.0
41.0 25.010.0 15.0
----412.0 ----
322.0 10.0 7.0 3.0
156.0 72.0 68.0 6.0 10.0
81.0 75.0
5.0 ----
412.0 ----
Exhibit 4.3Comparision Ratios of Horizon Limited with Industry Average
-----------INDUSTRY
AVERAGE-----------
1.26
0.69
1.25
0.56
4.14
6.43
7.50
2.23
1.26
18.00%
4.00%
6.90%
17.70%
8.80%
11.90%
9.26
14.10%
1.16
-----------Exhibit 4.7
Part A: Profit and Loss AccountCommon Size(%)
20X110079211331055
Part B: Balance Sheet54433
100685261
100
Exhibit 4.8
Part A: Profit and Loss AccountCommon Base Year
20X11131161018595828381
Part B: Balance SheetCommon Base Year
20X1102136
118102240172100118
Exhibit 5.2Proforma Profit and Loss Account for Spaceage Electronics
for 20X3 Based on Per cent of Sales Method------------------------------ -------- -------- ----------- -----------------
Historical Data Pro forma incomestatement of 20x3
-------- -------- ----------- with sales of20x1 20x2 Average % 1400
------------------------------ -------- -------- ----------- -----------------Net Sales 1200 1280 100.0 1400.0 Cost of Goods Sold 775 837 65.0 910.0 Gross Profit 425 443 35.0 490.0 Selling Expenses 25 27 2.1 29.4 General and Administration 0.0 0.0 Expenses 53 54 4.3 60.4 Depreciation 75 80 6.3 87.5 Operating Profit 272 282 22.3 312.7 Non-operating Surplus/deficit 30 32 2.5 35.0 Earning before Interest & Tax 302 314 24.8 347.7 Interest on Bank Borrowings 60 65 5.0 70.6 Interest on Debentures 58 60 4.8 66.6 Earnings Before Tax 184 189 15.0 210.6 Tax 82 90 6.9 97.1 Earnings after Tax 102 99 8.1 113.5 Dividends 60 63Retained Earnings 42 36------------------------------ -------- -------- ----------- -----------------
Exhibit 5.3 Proforma Profit and Loss Account for Spaceage Electronics
for 20x3 Using the Combination Method------------------------------ -------- -------- ----------- -----------------
Historical Data Pro forma incomestatement of 20x3
-------- -------- ----------- with sales of 20x1 20x2 Average % 1400------------------------------ -------- -------- ----------- -----------------Net Sales 1200 1280 100.0 1400.0 Cost of Goods Sold 775 837 65.0 910.0 Gross Profit 425 443 35.0 490.0 Selling Expenses 25 27 2.1 29.4 General and Administration Expenses 53 54 Budgeted 56.0 Depreciation 75 80 Budgeted 85.0 Operating Profit 272 282 @ 319.6 Non-operating Surplus/deficit 30 32 2.5 35.0
Earning before Interest & Tax 302 314 @ 354.6 Interest on Bank Borrowings 60 65 5.0 70.6 Interest on Debentures 58 60 Budgeted 65.0 Earnings Before Tax 184 189 @ 219.1 Tax 82 90 Budgeted 90.0 Earnings after Tax 102 99 @ 129.1 Dividends 60 63 Budgeted 70.0 Retained Earnings 42 36 @ 59.1 ------------------------------ -------- -------- ----------- -----------------@ These items are obtained using accounting identities
Exhibit 5.4 Proforma Balance Sheet for Spaceage Electronics
for December 31, 20x3------------------------------ -------- -------- ----------- -----------------
Historical Data Projections for-------- -------- ----------- Dec 31, 20x3Dec 31 Dec 31 Ave. of % Based on
20x1 20x2 Sales or a ForecastSome other Sales of 1400Method
------------------------------ -------- -------- ----------- -----------------Net Sales 1200 1280 100.0% 1400------------------------------ -------- -------- ----------- -----------------ASSETSFixed Assets (Net) 800 850 66.5% 931.5 Investments 30 30 no change 30.0 Current Assets, Loans & Advances * Cash and Bank Balances 25 28 2.1% 29.9 * Receivables 200 212 16.6% 232.6 * Inventories 375 380 30.4% 426.2 * Pre paid expenses 50 55 4.2% 59.3 Misc. Expenses and losses 20 20 no change 20.0
---- ---- ----TOTAL 1500 1575 1729.4
---- ---- ----LIABILITIESShare Capital * Equity 250 250 no change 250.0 * Preference 50 50 no change 50.0 Reserves & Surplus 250 286 Proforma 345.1
IncomeStatement
SECURED LOANS * Debentures 400 400 no change 400.0 * Bank borrowings 300 305 24.4% 341.5 UNSECURED LOANS
* Bank Borrowings 100 125 9.1% 127.0 CURRENT LIABILITIES AND BORROWINGS * Trade creditors 100 112 8.5% 119.7 * Provisions 50 47 3.9% 54.8 EXTERNAL FUNDS REQUIREMENT Balancing 41.4
Figure---- ---- ----1500 1575 1729.4 ---- ---- ----
20x1 20X2
Net sales 1200 1280 100.0 Projected 1400.0
Cost of goods sold 775 837 65.0 = D3/$D$2*$F$2 909.8
Gross profit 425 443 35.0 = D4/$D$2*$F$2 490.2
Selling expenses 25 27 2.1 =D5/$D$2*$F$2 29.3
General and administration 53 54 Budgeted 56.0
Depreciation 75 80 Budgeted 85.0Operating profit =F4-F5-F6-F7 319.8
30 32 2.5 =D9/$D$2*$F$2 35.0
Profit before interest and tax =F8+F9 354.8
Interest on bank borrowings 60 65 5.0 =D11/$D$2*$F$2 70.5
Interest on debentures 58 60 =0.15*C34 60.0Profit before tax =F10-F11-F12 224.3Tax 82 90 Budgeted 90.0Profit after tax =F13-F14 134.3Dividends 60 63 Budgeted 70.0Retained earnings =F15-F16 64.3Balance Sheet
Fixed assets(net) 800 850 66.5 =D19/$D$2*$F$2 931.5Investments 30 30 =C20 30.0
Cash and bank 25 28 2.1 =D22/$D$2*$F$2 29.9Receivables 200 212 16.6 =D23/$D$2*$F$2 232.6Inventories 375 380 30.5 =D24/$D$2*$F$2 426.6Pre-paid expenses 50 55 4.2 =D25/$D$2*$F$2 59.2
20 20 =C26 20.0
Total 1500 1575 =F19+F20+F22+F23+F24+F25+F2 1729.8LiabilitiesShare capitalEquity 250 250 =C30 250.0Preference 50 50 =C31 50.0Reserves and surplus 250 286 =C32+F17 350.3Secured loansDebentures 400 400 =F41-F30-F31-F32-F35-F37-F39-F 436.6Bank borrowings 300 305 24.4 =D35/$D$2*$F$2 341.8Unsecured loansBank borrowings 100 125 9.0 =D37/$D$2*$F$2 126.7
Profit and Loss account
Average percent of sales
Before Iteration Proforma profit and loss account for 20X3
Non-operating surplus/deficit
Proforma balance sheet for 20X3
Current assets, loans and advances
Miscellaneous expenditures and losses
Trade creditors 100 112 8.5 =D39/$D$2*$F$2 119.6Provisions 50 47 3.9 =D40/$D$2*$F$2 54.9Total 1500 1575 =F27 1729.8
Current liabilities and provisions
20x1 20X2
Net sales 1200 1280 100.0 Projected 1400.0Cost of goods sold 775 837 65.0 = D3/$D$2*$F$2 909.8Gross profit 425 443 35.0 = D4/$D$2*$F$2 490.2Selling expenses 25 27 2.1 =D5/$D$2*$F$2 29.3General and administration 53 54 Budgeted 56.0Depreciation 75 80 Budgeted 85.0Operating profit =F4-F5-F6-F7 319.8
30 32 2.5 =D9/$D$2*$F$2 35.0
Profit before interest and tax =F8+F9 354.8
Interest on bank borrowings 60 65 5.0 =D11/$D$2*$F$2 70.5
Interest on debentures 58 60 =0.15*F34 Err:522Profit before tax =F10-F11-F12 Err:522Tax 82 90 Budgeted 90.0Profit after tax =F13-F14 Err:522Dividends 60 63 Budgeted 70.0Retained earnings =F15-F16 Err:522Balance Sheet
Fixed assets(net) 800 850 66.5 =D19/$D$2*$F$2 931.5Investments 30 30 =C20 30.0
Cash and bank 25 28 2.1 =D22/$D$2*$F$2 29.9Receivables 200 212 16.6 =D23/$D$2*$F$2 232.6Inventories 375 380 30.5 =D24/$D$2*$F$2 426.6Pre-paid expenses 50 55 4.2 =D25/$D$2*$F$2 59.2
20 20 =C26 20.0
Total 1500 1575 =F19+F20+F22+F23+F24+F25+F2 1729.8LiabilitiesShare capitalEquity 250 250 =C30 250.0Preference 50 50 =C31 50.0Reserves and surplus 250 286 =C32+F17 Err:522Secured loansDebentures 400 400 =F41-F30-F31-F32-F35-F37-F39-F Err:522Bank borrowings 300 305 24.4 =D35/$D$2*$F$2 341.8
Profit and Loss account
Average percent of sales
After Iteration Proforma profit and loss account for 20X3
Non-operating surplus/deficit
Proforma balance sheet for 20X3
Current assets, loans and advances
Miscellaneous expenditures and losses
Unsecured loansBank borrowings 100 125 9.0 =D37/$D$2*$F$2 126.7
Trade creditors 100 112 8.5 =D39/$D$2*$F$2 119.6Provisions 50 47 3.9 =D40/$D$2*$F$2 54.9Total 1500 1575 =F27 1729.8
Current liabilities and provisions
Amount of deposit per period(PMT) Rs. 30,000No.of periods (NPER) years 30Interest rate (RATE) p.a. 8%Accumulated amount (FV) Rs. 3,398,496
Formula used =FV(B3,B2,-B1)
Future value(Fv) 8,000Periods in years (Nper) 6 Rate 11.43%Periodic payment(Pmt) (1,000) =RATE(B2,B3,,B1)
Year 1 2 3 4 5 6 7 8Cash flow 1,000 2,000 2,000 3,000 3,000 4,000 4,000 5,000Discount rate 12% =NPV(B3,B2:I2) 13,375
Monthly payment(Pmt) Rs. 12,000
Period in months(Nper) 36 Present value 331,928
Rate of interest per month(Rate) 1.50% =PV(B3,B2,B1)
Present value Interest rate1,000,000 15% 5 (298,316)
Year Interest1 1,000,000 298,316 150000 148,316 851,6842 851,684 298,316 127753 170,563 681,1213 681,121 298,316 102168 196,148 484,9734 484,973 298,316 72746 225,570 259,4035 259,403 298,316 38910 259,406 (3)
No. of instalments (in years)
Annual instalment
amount
Beginning amount
Annual instalment
Principal repayment
Remaining balance
Initial deposit 300,000Interest rate 10% Annual withdrawal 48,824 Period in years 10 =PMT(B2,B3,-B1)
Settlement 1/1/2006 This is the date of purchase. If not certain, fill in any date.Maturity ### The formula in this case is = B3+365*8 , as the maturity period is 8 years.Rate 12% The annual coupon rateYield 14% The required return per annumRedemption 100 Fill in the redemption value as a percentage of the par valueFrequency 2 This represents the number of times interest is paid in an yearBasis 3 3 represents the day count convention: actual no. of days/365 in int.calculatioPrice 90.57 To get the result in B8, use the function =PRICE(B1,B2,B3,B4,B5,B6,B7) Bond price is obtained per Rs.100 of the face value of the bond. Thus,had the redemption value beeRs. 1000, the price would have been Rs.90.55 x 10
Formula usedPrice of the bond at present(PV) Rs. 800Par value/Maturity value of the bond(FV) Rs. 1,000Coupon rate per period 9%Coupon amount payabole per period(PMT) R =C3*C4 90No. of periods(NPER) 8Yield to Maturity(RATE) =RATE(C6,C5,-C2,C3,0) 13.20%
Yield to maturity of a bond can also be obtained using the Yield formula in Excel, as shown belowFormula used
Settlement As the date is not given, use any date 1/1/2011Maturity =C11+365*8 12/30/2018Rate 9%Redemption 100Frequency 1Basis 3Price =800/10 80Yield to maturity =YIELD(C11,C12,C13,C17,C14,C15,C16 13.20%Note: The parameters are the same as that used in the spreadsheet illustration for 'PRICE'
n(years)20% 10% 6
Formula used=E2*(1+A2)*(1-((1+A2)/(1+D2))^C2)/(D2-A2)+E2*(1+A2)*(1+A2)^(C2-1)*(1+B2)/(D2-B2)/(1+D2)^C2
g1 g2
P0(Rs)
r15% 2
Formula used=E2*(1+A2)*(1-((1+A2)/(1+D2))^C2)/(D2-A2)+E2*(1+A2)*(1+A2)^(C2-1)*(1+B2)/(D2-B2)/(1+D2)^C2 70.76
D0(Rs)
H(years) r50% 12% 5 16% 3
Formula used =E2*((1+B2)+C2*(A2-B2))/(D2-B2) 226.50
ga gn D0(Rs)
P0(Rs)
Exhibit 8.1Data on S&P CNX Nifty
DATE NIFTY DATE NIFTY
Dec 24, 1990* 330.86 - Dec 29, 2000 1263.55 -14.65
Dec 24, 1991 558.63 68.84 Dec 31, 2001 1059.05 -16.18
Dec 24, 1992 761.31 36.28 Dec 31, 2002 1093.5 3.25
Dec 24, 1993 1042.59 36.95 Dec 31, 2003 1879.75 71.90
Dec 23, 1994 1182.28 13.40 Dec 31, 2004 2080.5 10.68
Dec 29,1995 908.53 -23.15 Dec 30, 2005 2836.55 36.34
Dec 31, 1996 899.1 -1.04 Dec 29, 2006 3,966.40 39.83
Dec 31, 1997 1079.4 20.05 Dec 31, 2007 6,138.60 54.77
Dec 31, 1998 884.25 -18.08 Dec 31, 2008 2959.15 -51.79
Dec 30, 1999 1480.45 67.42 Dec 31, 2009 5201 75.76
Dec 31, 2010 6134.5 17.95
21.43 =AVERAGE(C5:C13,F4:F14)
Geometric mean calculation
DATE NIFTY
Dec 24, 1990* 330.86 -
Dec 24, 1991 558.63 68.84 1.6884
Dec 24, 1992 761.31 36.28 1.3628
Dec 24, 1993 1042.59 36.95 1.3695
Dec 23, 1994 1182.28 13.40 1.1340
Dec 29,1995 908.53 -23.15 0.7685
Dec 31, 1996 899.1 -1.04 0.9896
Dec 31, 1997 1079.4 20.05 1.2005
Dec 31, 1998 884.25 -18.08 0.8192
Dec 30, 1999 1480.45 67.42 1.6742
Dec 29, 2000 1263.55 -14.65 0.8535
Dec 31, 2001 1059.05 -16.18 0.8382
Dec 31, 2002 1093.5 3.25 1.0325
Dec 31, 2003 1879.75 71.90 1.7190
Dec 31, 2004 2080.5 10.68 1.1068
ANNUAL RETURN(%)
ANNUAL RETURN(%)
Arithmetic mean
ANNUAL RETURN(%)
1+ANNUAL RETURN
Dec 30, 2005 2836.55 36.34 1.3634
Dec 29, 2006 3,966.40 39.83 1.3983
Dec 31, 2007 6,138.60 54.77 1.5477
Dec 31, 2008 2959.15 -51.79 0.4821
Dec 31, 2009 5201 75.76 1.7576
Dec 31, 2010 6134.5 17.95 1.1795Product 18.5411 =PRODUCT(D21:D40)
Geometric Mean 15.72% =D41^(1/20)-1
Period 1 2 3 4 5 6
15 12 20 -10 14 9Mean =AVERAGE(B2:G2) 10Standard deviation =STDEV(B2:G2) 10.45
Return (Ri)
Exhibit 8.2 & 8.3 ------------ -------- -------- -------- -------- -----------
ILLUSTRATIONS OF THE CALCULATION OF STANDARD DEVIATION------------ -------- -------- -------- -------- -----------
BHARAT FOODS------------ -------- -------- -------- -------- ----------- -----------
Pi Ri% pi*Ri Ri-Rbar------------------------------------------------------------------------------------------------------------------------------------1. Boom 0.30 16 4.8 4.50 20.25 6.075 2. Normal 0.50 11 5.5 -0.50 0.25 0.125 3. Recession 0.20 6 1.2 -5.50 30.25 6.050 ------------ -------- -------- -------- -------- ---------- ----------
CALCULATIONS
11.50
Sum of Pi(Ri-Rbar) 12.25
[Sum{Pi(Ri-Rbar)^2}]^0.5= 3.50%------------ -------- -------- -------- -------- ----------- -----------
------------ -------- -------- -------- -------- ----------- -----------ORIENTAL SHIPPING
------------ -------- -------- -------- -------- --------------------
Pi Ri% pi*Ri Ri-Rbar---------------------------------------------------------------------------------------------------------------------------1. Boom 0.30 40 12 27.00 729 218.700 2. Normal 0.50 10 5 -3.00 9 4.500 3. Recession 0.20 -20 -4 -33.00 1089 217.800 ------------ -------- -------- -------- -------- ---------- ----------
CALCULATIONS
13.00
Sum of Pi(Ri-Rbar) 441
[Sum{Pi(Ri-Rbar)^2}]^0.5= 21.00%
------------ -------- -------- -------- -------- ----------- -----------
------------ -------- -------- -------- -------- -----------Exhibit 8.10
CALCULATION OF BETA------------ -------- -------- -------- -------- ----------- -----------
YEAR Rjt Rmt Rjt- Rmt- (Rjt-R#j)x (Rmt- R#j R#m (Rmt-R#m) R#m)^2
------------ -------- -------- -------- -------- ----------- -----------1 10 12 -2 -1 2 12 6 5 -6 -8 48 64
i=State of the Economy
(Ri-Rbar)^2
Pi(Ri-Rbar)^2
Sum of (Pi)(Ri)=
Standard Deviation=
i=State of the Economy
(Ri-Rbar)^2
Pi(Ri-Rbar)^2
Sum of (Pi)(Ri)=
Standard Deviation=
3 13 18 1 5 5 254 -4 -8 -16 -21 336 4415 13 10 1 -3 -3 96 14 16 2 3 6 97 4 7 -8 -6 48 368 18 15 6 2 12 49 24 30 12 17 204 28910 22 25 10 12 120 144
---- ---- ---- ---- ---- ----Total= 120 130 778 1022
---- ---- ---- ----Mean Rj=R#j= 12Mean Rm=R#m= 13
------------ -------- -------- -------- -------- -----------86.4
Beta=Bj=Cov(Rj,Rm)/Var(Rm)= ------= 0.76 113.6
Alpha=R#j-Bj*R#m= 12-(0.76) 2.12%
------------ -------- -------- -------- -------- -----------
ILLUSTRATIONS OF THE CALCULATION OF STANDARD DEVIATION
-----------
0.00
Year 1 2 3 4 5 6 7 8 9
10 6 13 (4) 13 14 4 18 24
12 5 18 (8) 10 16 7 15 30
=SLOPE(B2:K2,B3:K3) 0.76 =INTERCEPT(B2:K2,B3:K3)
Return on security j(%)Return on market portfolio (%)
10
22
25
2.10
60
56
0.3
0.5
0.14
=(LN(C1/C2)+(C5+(C3^2)/2)*C4)/(C3*(C4^0.5)) 0.7613
=C6-C3*(C4^0.5) 0.5492
= C1*NORMSDIST(C6)-(C2/EXP(C5*C4))*NORMSDIST(C 9.61
Price of stock now S0 Exercise price E Standard deviation of continuously compounded annual return σ Years to maturity t Interest rate per annum r d1 d2 Equilibrium value of call option now, C0
Year 0 1 2 3 4 5Cash flow (1,000,000) 200,000 200,000 300,000 300,000 350,000
Cost of capital 10% NPV =NPV(B3,C2:G2)+B2 (5,272)
Year 0 1 2 3 4
Cash flow (100,000) 30,000 30,000 40,000 45,000
=IRR(B2:F2) 15.37%
Exhibit 11.5Calculation of Discounted Payback Period
Year Cash flow0 -10000 1.000 -10000 -100001 3000 0.909 2727 -72732 3000 0.826 2479 -47933 4000 0.751 3005 -17884 4000 0.683 2732 9445 5000 0.621 31056 2000 0.564 11297 3000 0.513 1539
Discounting factor @10%
Present value
Cumulative net cash flow after discounting
Exhibit 12.2Project Cash Flows
----------------------------- -------- -------- -------- -------- --------YEAR ----> 0 1 2 3 4
----------------------------- -------- -------- -------- -------- --------1. Fixed Assets (80.00)2. Net working capital margin (20.00)3. Revenues 120.00 120.00 120.00 120.00 4. Costs (Other than D&I) 80.00 80.00 80.00 80.00 5. Depreciation 20.00 15.00 11.25 8.44 6. Profit before Tax 20.00 25.00 28.75 31.56 7. Tax 6.00 7.50 8.63 9.47 8. Profit after tax 14.00 17.50 20.13 22.09 9. Net salvage value10. Net recovery of WC margin11. Initail Flow (100.00)12. Operating Flow 34.00 32.50 31.38 30.53 13. Terminal Flow14. Net Cash Flow (100.00) 34.00 32.50 31.38 30.53
Book Value of Investment 100.00 80.00 65.00 53.75 45.31
Tax Rate 0.3 0.3 0.3 0.3
Irr = 26.18% DR = 25.00% C.o.C.=
Exhibit 12.2Project Cash Flows
--------5
--------
120.00 80.00 6.33
33.67 10.10 23.57 30.00 20.00
29.90 50.00 79.90
0.3
30.00%
Exhibit 12.3--------------------------------- -------- -------- -------- -------- --------
CASH FLOWS FOR THE K-CIN PROJECT--------------------------------- -------- -------- -------- -------- --------
YEARS (Rs. Million)0 1 2 3 4
--------------------------------- -------- -------- -------- -------- --------1. Capital Investment (100.00)2. Level of Working Capital 20 30 40 30 203. Revenues 100 150 200 1504. Raw Material Cost 30 45 60 455. Labour Cost 20 30 40 306. Operating and Maintenance Cost 5 5 5 57. Loss of Contribution 15 15 15 158. Depreciaiton 25.00 18.75 14.06 10.559. Bad Debt Loss10. Profit Before Tax 5.00 36.25 65.94 44.4511. Tax 2.00 14.50 26.38 17.7812. Profit After Tax 3.00 21.75 39.56 26.6713. Net Salvage Value of Equipment14. Recovery of Working Capital--------------------------------- -------- -------- -------- -------- --------15. Initial Investment (100.00)16. Operating Cash Inflow (12+8+9) 28.00 40.50 53.63 37.2217. Change in Working Capital 20.00 10.00 10.00 -10.00 -10.0018. Terminal Cash Flow (13+14)--------------------------------- -------- -------- -------- -------- --------19. Net Cash Flow (15+16-17+18) -120.00 18.00 30.50 63.63 47.22--------------------------------- -------- -------- -------- -------- --------
ASSUMPTIONS--------------------------------- -------- -------- -------- -------- --------Raw Material Cost = 30.00% of salesLabour Cost = 20.00% of salesOperating & Maintenance Cost = 1 millionOverhead Allocation = 10.00% of salesDepreciation Rate = 25.00%Working Capital = 0.2 of salesShort Term Borrowing for W/C = 0.5 of W/CInterest on Short Term Borrow= 0.18Debentures = 0.5 of Capital InvestmentInterest on Debentures = 0.15Tax Rate = 0.4Net Salvage Value of Equipment 4 lakhs--------------------------------- -------- -------- -------- -------- --------
Exhibit 12.3--------
CASH FLOWS FOR THE K-CIN PROJECT--------
(Rs. Million)5
--------
01003020515
7.915
17.096.8410.25
2015
--------
23.16
35--------
58.16--------
--------
--------
Exhibit 12.4Cash Flows for the Replacement Project
Year 1 2 3 4I. Investment Outlay1. Cost of New Asset -1600.002. Salvage Value of Old Asset 500.003. Increase in Net Working Capital 100.004. Total Net Investment(1-2+3) 1200.00
180.00 180.00 180.00 180.006. Depreciaiton on New Machine 400.00 300.00 225.00 168.757. Depreciation on Old Machine 100.00 75.00 56.25 42.198. Incremental Depreciation(6-7) 300.00 225.00 168.75 126.56
120.00 90.00 67.50 50.6310. Net Operating Cash Flow (5+9) 300.00 270.00 247.50 230.63III. Terminal Cash Flow
IV. Net Cash Flow (4+10+14) 1200.00 300.00 270.00 247.50 230.63
Depreciation Rate 25%Tax Rate 40%
II. Operating Inflows Over the Project Life Cycle5. After Savings in Manufacturing Costs
9. Tax savings in Incremental Depreciaiton
11. Net Terminal Value of New Machine12. Net Terminal Value of Old Machine13. Recovery of Incremental Working Capital14. Total Yerminal Cash Flow (11-12+13)
Exhibit 12.4Cash Flows for the Replacement Project
5
180.00126.5631.6494.92
37.97217.97
800.00
160.00
100.00
740.00957.97
Exhibits 13.2 &3 on Sensitivity Analysis-Illustration( All amounts in Rupees thousands)
Factors Calculation of expected net present valueInitial investment 20,000 InvestmentCost of capital 12% Sales Sales 18,000 Variable costs
2/3 Fixed costsFixed costs 1,000 Depreciation
10% Pre-tax profitTax rate 1/3 Taxes
10 Profit after taxes
Net salvage value 0 Salvage valueNet present value
Investment 2,601 Sales24,000 (646) 1500018,000 4,224 21,000
The following analysis is done using the above technique
Net present value Fixed Costs70% 340.80 1,30065% 3730.94 800
Expected values
Variable cost per unit as a fraction of sales
Depreciation as a percentage of the investment
Life of the project in years
Cash flow from operations
For sensitivity analysis proceed as follows.In cell B18 copy the formula for NPV from cell E14. .Leave the adjcacent cell to the left(A18) blank and then fill the various values of investment, one below the other from cell A19 onwards( in
this case 24,000 and 18,000). Highlight(select) A18 to B20 and then from the drop-down menu for
Data, select table. In the dialogue box that appears, type against column input cell ,the cell
reference B4 and click OK. The NPV values corresponding to the various investment figures
will be automatically filled in. Next give headings Investment and NPV in cells A18 and B18 respectively as separately shown.To change
the numerical value into text in cell B18 go to Format>Cells>Custom and against Type, type out "
Net present value"
Variable costs as a percentage of sales
Exhibits 13.2 &3 on Sensitivity Analysis-Illustration( All amounts in Rupees thousands)Calculation of expected net present value
20,000 18,000 12,000
1,000 2,000
3,000 1,000
2,000
4,000 0
2,601
Net Present Value(1,166)6,368
Net present value1,471 3,354
Discount rate Project life Tax rate12% 10 33.33%
Expected valuesInvestment in year 0 (20,000)Variable costs as a percentage of sales 66.67%For years 1 to 10Sales 18,000Variable costs =C7*C5 12,001Fixed costs 1,000Depreciation =-C4/B2 2,000Pre-tax profit 2,999Taxes =C11*C2 1,000Profit after taxes =C11-C12 2,000Cash flow from operation =C13+C10 4,000Present value of the cash flow stream =PV(A2,B2,-C14) 22,599Net present value of the project =C15+C4 2,599
Key variables Pessimistic Expected OptimisticInvestment -24,000 -20,000 -18,000Sales 15,000 18,000 21,000Variable costs as a percent of sales 70 66.67 65Fixed costs 1,300 1,000 800
Pessimistic
Page 94
-240000.7
15000
1300
Expected
Page 95
-200000.6667
18000
1000
Optimistic
Page 96
-180000.65
21000
800
Scenario Summary
Current Values: Pessimistic Expected OptimisticChanging Cells:
$C$4 (20,000) (24,000) (20,000) (18,000)$C$7 18,000 15,000 18,000 21,000$C$5 66.67% 70.00% 66.67% 65.00%$C$9 1,000 1,300 1,000 800
Result Cells:$C$16 2,599 -7,426 2,599 10,064
Notes: Current Values column represents values of changing cells attime Scenario Summary Report was created. Changing cells for eachscenario are highlighted in gray.
('000)Year 0 1 to 10Investment 20,000
2/3Tax rate 33.33%Sales per year 18,000Variable costs per year 12,000Fixed costs per year 1,000Depreciation per year 2,000Pre-tax profit per year 3,000Taxes per year 1,000
2,000
4,000
9,000
Discount rate 12%Project life in years 10
22,601Initial investment 20,000
15,928
Illustration of Certainty Equivalent(Amounts in Rupees)
Risk free inteerest rate 5%
Year0 -4,500,000 1 -4500000 -4,500,0001 1,000,000 0.9 900000 857,1432 1,500,000 0.85 1275000 1,156,4633 2,000,000 0.82 1640000 1,416,6944 2,500,000 0.78 1950000 1,604,270
Net present value 534,569
Calculation of Financial Break-even using the data in Exhibit 13.7
Variable costs as a fraction of sales
Profit after taxes per yearCash flow from operation per yearAccounting break-even level of salesCalculation of the financial break-even level of sales
Total of the present values of the cash inflows
Financial break-even level of sales
Expected cash flow
Certainty Equivalent Coefficient
Certainty equivalent value
PV of certainty equivalent
value
Cost
Equity 18% 0 to 30 75 0 to 7520% Above 30 - Above 75
Debt 10% 0 to 50 83.33 0 to 83.3311% Above 50 - Above 83.33
Proportion: Equity 40%Debt 60%
Source of Capital Proportion Cost %
(1) (2) (3) (2)x(3)0 to 75 Equity 40% 18.00% 7.20%
Debt 60% 10.00% 6.00%Weighted Average Cost of Capital 13.20%
75 to 83.33 Equity 40% 20.00% 8.00%Debt 60% 10.00% 6.00%
Weighted Average Cost of Capital 14.00%Above 83.33 Equity 40% 20.00% 8.00%
Debt 60% 11.00% 6.60%Weighted Average Cost of Capital 14.60%
0 to 75 13.20%75 to 83.33 14.00%
Above 83.33 14.60%
Exhibit 14.2 Determination of Breaking Point and the Resulting Range of Total New Financing for Shiva Electronics
Source of Capital
Range of New Financing (Rs. Mill)
Breaking Point (Rs.
Mill)
Range of Total New Financing
Exhibit 14.3 Weighted Average Cost of Capital for Various Ranges of Total Financing for Shiva Electronics
Range of Total New Financing (Rs. Mill)
weighted cost %
Exhibit 14.4 The Weighted Marginal Cost of Capital
Range of Total Financing
Weighted Marginal Cost of Capital (%)
Exhibit 23.7Financial Information for Horizon Limited
Balance Sheet Data
Sales 800 Inventory 96 102Cost of goods sold 720 Accounts receivable 86 90
Accounts payable 56 60Inventory period in days 50.2
Accounts receivable period in days 40.2Accounts payable period in days 29.4Operating cycle 90.3Cash cycle 60.9
Profit & Loss Aaccount Data
Beginning of 20X0
End of 20X0
Illustration of Cash Requirement for Working Capital(Amounts in Rs.million)
Sales 240.00
Materials consumed 72.00
Wages paid 48.00
Manufacturing expenses outstanding 4.00Total administrative expenses 30.00Gross profit 0.25
2.00
1.00Cash balance maintained 5.00
0.10Total manufacturing cost 180.00Manufacturing expenses 60.00Cash manufacturing expenses 48.00Depreciation 12.00Cash manufacturing cost 168.00Total cash cost 198.00Current assets Current LiabilitiesDebtors 33.00 Sundry creditorsRaw material stock 12.00 Manufacturing expeses outstandingFinished goods stock 14.00 Wages outstandingCash balance 5.00 Total current liabilitiesTotal current assets 64.00Working capital 38.00Safety margin on working capital 3.80Working capital required 41.80
Credit period granted on sales(months)Credit period extended by suppliers(months)Period of arrear in payment of wages(months)Period of arrear in payment of cash expenses(months)
Stocking period of raw materials (months)Stocking period of finished goods(months)
Safety margin on working capital requirement
Illustration of Cash Requirement for Working Capital(Amounts in Rs.million)
2
3
1
1
18.004.004.0026.00
Exhibit 24.2Forecast of Cash ReceiptsJanuary February March April May June
1. Sales 100000 100000 100000 120000 120000 1200002. Credit Sales 80000 80000 80000 96000 96000 96000
80000 80000 80000 80000 88000 960004. Cash Sales 20000 20000 20000 24000 24000 24000
50006. Interest 2000Total Cash receipts 100000 100000 105000 104000 112000 122000
Exhibit 24.3Forecast of Cash PaymentsJanuary February March April May June
1. Material Purchases 40000 40000 48000 48000 48000 48000
40000 40000 48000 48000 48000 48000
40000 40000 40000 48000 48000 48000
2000 2000 2000 2000 2000 20005. Wages 15000 15000 15000 15000 15000 150006. Manufacturing Expenses 20000 20000 20000 20000 20000 20000
10000 10000 10000 10000 10000 100008. Dividend 200009. Tax 2000010. Capital Expenditure 50000Total 87000 87000 137000 95000 95000 135000
Exhibit 24.4Summary of Cash Forecast January February March April May June
1. Opening Cash Balance 220002. Receipts 100000 100000 105000 104000 112000 1220003. Payments 87000 87000 137000 95000 95000 1350004. Net Cash Flow 13000 13000 -32000 9000 17000 -130005. Cumulative Net Cash Flow 13000 26000 -6000 3000 20000 70006. Opening Cash Balance 35000 48000 16000 25000 42000 29000
20000 20000 20000 20000 20000 20000
15000 28000 -4000 5000 22000 9000
3. Collection of Accounts Receivables
5. Receipt from Sale of Equipment
2. Credit Material Purchases3. Payment of Accounts Payable4. Miscellaneous Cash Purchases
7. General Admin. and Selling Expenses
7. Minimum Cash Balance Required8. Surplus or Deficit in Relation to the Minimum Cash Balancd Required
Exhibit 25.2
Construction of a Credit Rating Index (based on a 5-point rating scale)
Factor Factor weightRating
5 4Past payment 0.30 *Net profit margin 0.20 *Current ratio 0.20Debt-equity ratio 0.10 *Return on equity 0.20 *
Rating index
Illustration of Days Sales Outstanding
Month ReceivablesJanuary 150 400 31February 156 360 28March 158 320 31April 150 310 30May 170 300 31June 180 320 30July 190 340 31August 200 350 31September 210 360 30October 220 380 31November 230 400 30December 240 420 31
Days Sales OutstandingEnd of quarter 1 62End of quarter 2 58End of quarter 3 55End of quarter 4 56
Sales(Rs.in million)
No.of days in the month
Exhibit 25.2
Construction of a Credit Rating Index (based on a 5-point rating scale)Rating
3 2 11.200.80
* 0.600.401.00
Rating index 4.00
Factor score
Safety stock and calculations in Exhibit 26.2
Probability Probability10 0.2 20 0.2520 0.6 30 0.5030 0.2 40 0.25
Stockout cost estimated per ton (Rs.) 10,000Carrying cost per ton per year (Rs.) 1,400(a)Normal usage in tons 600=SUMPRODUCT(A43:A45,B43:B45)*SUMPRODUCT(C43:C45,D43:D45)
10 20 20010 30 30010 40 40020 20 40020 30 60020 40 800 20030 20 60030 30 900 30030 40 1200 600
Safety stock Stockout Stockout cost Probability Total cost600 0 0 0 0 840,000 840,000300 300 3,000,000 0 150,000 420,000 570,000200 100 1,000,000 0 100,000 280,000 580,000
400 4,000,000 0 200,000300,000
0 200 2,000,000 0 300,000300 3,000,000 0 300,000600 6,000,000 0 300,000 0 900,000
900,000
Daily usage rate in tons
Lead time in days
Daily usage rate
Lead time in days
Possible levels of usage
Safety stock
Expected stockout cost
Carrying cost
The optimal level of safety stock is 27 tons because at that level the cost is minimised.
Exhibit 28.2 Good Accounts Bad Acounts
1 1.10 13 11 0.70 112 1.50 15 12 0.90 -43 1.20 17 13 0.80 64 0.90 21 14 1.30 25 1.60 7 15 1.10 66 2.20 8 16 0.50 87 0.90 16 17 0.30 88 1.00 13 18 1.40 69 1.30 8 19 0.90 310 1.30 2 20 1.10 14
Sums 13.00 120.00 9.00 60.00Averages 1.30 12.00 0.90 6.00
Average for both groupsX 1.1Y 9
No. (X-X_bar)^2 (Y-Y_bar)^2 No. (X-X_bar)^2 (Y-Y_bar)^21 0.00 16 0.00 11 0.16 4
2 0.16 36 2.40 12 0.04 169
3 0.01 64 0.80 13 0.09 9
4 0.04 144 -2.40 14 0.04 49
5 0.25 4 -1.00 15 0.00 9
6 1.21 1 -1.10 16 0.36 1
7 0.04 49 -1.40 17 0.64 1
8 0.01 16 -0.40 18 0.09 9
9 0.04 1 -0.20 19 0.04 36
10 0.04 49 -1.40 20 0.00 25
SUM 1.80 380 -4.70 1.46 312.00Averagesx^2 3.26
y^2 692.00 0.172
xy -1.70 36.421
dx 0.40 -0.089dy 6.00
Coefficients of the Discriminant Functiona 2.4203b 0.1707
Exhibit 28.3Z Scores for various accountsAcount No. Z Score
1 4.88122 6.19073 5.8060
Xi Yi Xi Yi
Account Number
Current Ratio
Return on Investment
Account Number
Current Ratio
Return on Investment
(X-X_bar)* (Y-Y_bar)
σ2 of X
σ2 of Y
σ of XY
4 5.76275 5.06736 6.69017 4.90928 4.63929 4.511910 3.487811 3.571812 1.495513 2.960414 3.487815 3.686416 2.575617 2.091618 4.412519 2.690320 5.0519
-0.80
2.60
0.90
-1.40
0.00
0.60
0.80
-0.90
1.20
0.00
3.00
(X-X_bar)* (Y-Y_bar)
Exhibit 29.3Calculation of Duration
Year Cash Flow18%
1 2 3 4 5
1 15.00 12.71 0.142 0.1422 15.00 10.77 0.120 0.2413 15.00 9.13 0.102 0.3064 15.00 7.74 0.086 0.3465 15.00 6.56 0.073 0.3666 115.00 42.60 0.476 2.856
Duration 4.257
Face Value of the Bond 100
Current Value of the Bond 89.5
Coupon (interest rate) 15%
Present Value at
Proportion of the Bond's Value
Col 4 X Time
Face value 100
15%
6 =RATE(C3,C1*C2,-C5,C4) 18%
Redemption value 100
Current market price 89.5
Settlement 1/1/2006
Maturity =C6+365*C3 ### =DURATION(C6,C7,C2,F3,C8,C9) 4.26
Frequency 1
Basis 3
r
Coupon payable per annum
Years to maturity in years
Any date, if the date of purchase is not certain)
No. of times interest paid in a year
3 represents the day count convention: actual no. of days/365 , in interest calculation
Given: (Rs.in million)Cost of the vehicle 1.2
0.2
8%
5
0.4Depreciation rate -WDV 40%
Marginal tax rate of Centaur 35%Cost of capital of Centaur 11%
Exhibit 30.1
Post-tax Cash Flows Associated with the Ownership and Operation of the CarYear
0 1 2 3 4Initial cost -1.200Operating and other costs -0.200 -0.216 -0.233 -0.252Depreciation rate -WDV 0.480 0.288 0.173 0.104
0.238 0.176 0.142 0.124Net salvage valuePost-tax cash flow -1.200 0.038 -0.040 -0.091 -0.127Discount factor 1.000 0.901 0.812 0.731 0.659Present value -1.200 0.034 -0.032 -0.067 -0.084
Present value of the costs 1.203PVIFA 3.696Post-tax EAC 0.326Lease rental 0.501
Exhibit 30.2 Cash Flow of the Lease ContractYear
0 1 2 3 41. Cost of fork lift 102. Depreciation 4.00 2.40 1.44 0.86
-1.40 -0.84 -0.50 -0.304. Lease payment -2.4 -2.4 -2.4 -2.4
0.84 0.84 0.84 0.846. Loss of salvage value
10.00 -2.96 -2.40 -2.06 -1.86
Comparing lease and Hire purchase options(Amounts in Rs.)
Operating, maintenance,insurance and other costs in year 1Increase in the above cost per annumUseful life of the car- in yearsNet salvage value of the car at the end of 5 years
Tax shield operating costs and depreciation
3. Loss of depreciation tax shield (2 * 0.35)
5. Tax shield on lease payment (4 * 0.35)
7. Cash flow of lease (1+3+4+5+6)
Given:Cost of the equipment 1,000,000
10
100,000
8%
50%
33.33%Hire-Purchase option:Flat interest rate 0
36 Year InterestTotal interest burden 420,000 1 473,333 230,811 242,523Annual HP instalment 473,333 2 473,333 140,000 333,333Monthly HP instalment 39,444 3 473,333 49,189 424,144Lease option:
5
0.3
10
12,000Exhibit 30.5
Cash Flows of Leasing and Hire-Purchase OptionsYear Leasing Hire-Purchase
Rent Interest Principal NSV1 -150,000 -115,405 -242,523 166,6672 -150,000 -70,000 -333,333 111,1113 -150,000 -24,595 -424,144 74,0744 -150,000 49,3835 -150,000 32,9226 -6,000 21,9487 -6,000 14,6328 -6,000 9,7559 -6,000 6,50310 -6,000 4,335 100,000
PV of the lease cash flows -615,211PV of the HP cash flows -587,125 Choose the lesser cost HP option
Years of use of the equipmentNet salvage value after 10 years of usePost-tax cost of debt to Synthetic ChemicalsTax rate for Synthetic ChemicalsDepreciation rate for the equipment as per WDV method
Hire-Purchase period in months
HP instalment
Principal repayment
Primary lease period in years
Lease rent per year during primary lease period as a fraction of the lease amountSecondary lease period in yearsLease rent per year during secondary lease period
Depn.tax shield
(Rs.in million)
Exhibit 30.1
Post-tax Cash Flows Associated with the Ownership and Operation of the CarYear
5
-0.2720.062
0.1170.4000.2450.5930.145
Exhibit 30.2 Cash Flow of the Lease ContractYear
5 6
0.52 0.31
-0.18 -0.11-2.4 -2.4
0.84 0.84-1.00
-1.74 -2.67
Comparing lease and Hire purchase options
Exhibit 30.5
Cash Flows of Leasing and Hire-Purchase OptionsHire-Purchase
-191,261-292,222-374,66549,38332,92221,94814,6329,7556,503
104,335
Net HP cash flow
Exhibit 32.3 Exhibit 32.7Financial Statements of Matrix for the Preceding Three Years( Years 1-3)
(Rs.in million)Profit and Loss Account
1 2 3Net sales 180 200 229
Income from marketable securities 3Non-operating income 8Total income 180 200 240Cost of goods sold 100 105 125
Selling and general administration expense 30 35 45Depreciation 12 15 18Interest expenses 12 15 16Total costs and expenses 154 170 204PBT 26 30 36Taxes 8 9 12PAT 18 21 24Dividend 11 12 12Retained earnings 7 9 12
Balance Sheet1 2 3
Equity capital 60 90 90Reserves and surplus 40 49 61Debt 100 119 134Total 200 258 285Fixed assets 150 175 190Investments 20 25Net current assets 50 63 70Total 200 258 285
The calculation of NOPLAT for Matrix Limited: Exhibit 32.8
Tax rate for Matrix Limited 40%Year 1 Year 2 Year 3
38 45 41Tax provision from income statement 8 9 12 1Add: Tax shield on interest expenses 4.8 6 6.4 2Less: Tax on interest income 0 0 1.2 3Less: Tax on non-operating income 0 0 3.2 4=Taxes on EBIT 12.8 15 14 A
25.2 30 27 5
Projected Profit and Loss account for Matrix Limited for five Years- Years 4 through 8- The Explicit Forecast Period
Free Cash Flow Forecast for Matrix Limited for Five Years- Years 4 through 8 - The Explicit Forecast Period
EBIT (= PBT+interest expense-interest income -non-operating income)
NOPLAT (=EBIT-taxes on EBIT)
15.0% 11.3% 6
38 22 78
Exhibit 32.4 : Free Cash Flow B
45 45 C
53 40 DFree cash flow -8 5 E
Exhibit 32.5- Cash Flow Available to Investors F
Year 2 Year 3Free cash flow -8 5Add: After-tax non-operating cash flow 0 4.8Cash flow available to investors -8 9.8
After-tax interest expenses 9 9.6
12 12Add: Redemption of debt 0 0
Less: New borrowing 19 15Add: Share buybacks 0 0Less: Share issues 30 0Add: ∆ Excess marketable securities 20 5
0 1.8Financing flow -8 9.8
ROIC (=NOPLAT/INVESTED CAPITAL)
Net investment [=(Net fixed assets at the end of the year + net current assets at the end of the year) - (Net fixed assets at the beginning of the year + net current assets at the beginning of the year)]
Gross cash flow (=NOPLAT +depreciation)
Gross investment (= increase/(decrease in net current assets + capital expenditure)
Add: Cash dividend on equity and preference capital
Less: After-tax income on marketable securities
Exhibit 32.7
Profit and Loss account(Rs.in million)
4 5 6 7 8Net sales 270 320 360 400 440
3 2Non-operating income
Total income 273 322 360 400 440Cost of goods sold 144 173 193 218 245
47 59 67 70 77Depreciation 22 26 29 32 35Interest expense 18 20 21 23 25
Total costs and expenses 231 278 310 343 382Profit before tax 42 44 50 57 58Tax provision 13 16 18 19 18Profit after tax 29 28 32 38 40Dividend 15 15 15 16 16Retained earnings 14 13 17 22 24
Projected Balance Sheet Equity capital 90 90 90 90 90Reserves& surplus 75 88 105 127 151Debt 140 150 161 177 192
Total 305 328 356 394 433Fixed assets 220 240 266 294 324Investments 10Net current assets 75 88 90 100 109
Total 305 328 356 394 433
Exhibit 32.8
( Rs.in million)
4 5 6 7 8Profit before tax 42 44 50 57 58Interest expense 18 20 21 23 25Interest income 3 2 0 0 0Non-operating income 0 0 0 0 0EBIT:[(1)+(2)-(3)-(4)] 57 62 71 80 83
13 16 18 19 18
Projected Profit and Loss account for Matrix Limited for five Years- Years 4 through 8- The Explicit Forecast Period
Income from excess marketable securities
Selling and general administration
Free Cash Flow Forecast for Matrix Limited for Five Years- Years 4 through 8 - The Explicit Forecast Period
Tax provision on income statement
Tax shield on interest expense 7.2 8 8.4 9.2 10
Tax on interest income 1.2 0.8 0 0 0Tax on non-operating income 0 0 0 0 0TAXES ON EBIT:[(5)+(6)-(7)-(8) 19 23.2 26.4 28.2 28
NOPLAT:[(A)-(B)] 38 38.8 44.6 51.8 55
NET INVESTMENT[ 35 33 28 38 39FREE CASH FLOW:[(C)-(D)] 3 5.8 16.6 13.8 16
12.9% 11.8% 12.5% 13.1% 12.7%
Note that the invested capital for year 4 after adjustment is Rs.295 millionTerminal steady growth rate, g 10%Target capital structure, i.e. D:E 2 : 3Cost of debt 12.67%Cost of equity 18%
WACC = 14.0%
Value of operations, PV(FCF) =NPV(I56,H49:L49) Rs.in million 34.78
=L49*(1+I52)/(I56-I52) Rs.in million 439.69PV(CV) =L59/(1+I56)^L36 Rs.in million 228.33Value of operations =L58+L60 Rs.in million ###Value of non-operating assets =D29 Rs.in million 25.00
VALUE OF MATRIX LIMITED =L61+L62 Rs.in million ###
,
ROIC=NOPLAT/INVESTED CAPITAL
Continuing value,=FCF8(1+g)/(WACC-g)
H50
cfm: NOTE THAT THE INVESTED CAPITAL FOR YEAR 4 AFTER ADJUSTMENT IS 295
Two Stage Growth Model
Base Year( Year 0) Information Inputs for High Growth rate period( Amounts in Rs.million) Length of the period(in years) 5
Revenues 4,000 Growth rate in revenues & EBIT 10%
EBIT 12.5% Growth rate in capital expenditure 10%Capital expenditure 300 Growth rate in depreciation 10%
Depreciation 200 30%
Net working capital 30% Cost of debt ( pre-tax) 15%Coroporate tax rate for all time 40% Debt equity ratio 1 :Paid up equity capital Rs.10 par 300 Risk-free rate 13%Market value of debt 1,250 Market risk premium 6%
Equity beta 1.333
Exhibit 32.9Forecasted FCF: Exotica Corporation
(Rs.in million)1 2 3 4
1 Revenues 4400 4840 5324 5856.402 EBIT 550 605 665.5 732.053 EBIT(1-t) 330 363 399.3 439.23
4 110 121 133.1 146.41
5 120 132 145.2 159.726 FCF (3-4-5) 100 110 121 133.10
High growth periodCost of equity 21.0% 19.00%
WACC 15.0% 15.00%
Present value of the FCF during the explicit forecast period =NPV(D27,C23:G23)Present value of terminal value =H23/(E27-H4)/(1+D27)^G17The value of the firm =H29+H30
Three Stage Growth Model
as a percentage of revenues
Net working capital as a percentage of revenue
as a percentage of revenues
Capital expenditure-depreciation
∆ Net working capital
Stable growth period
Base Year (Year 0 ) Information Inputs for the
(amounts in Rs.million) Length of the period in years 5 5
Revenues 1,000 25%
EBIT 250 3%
Capital expenditure 295 20% 20%
240 Cost of debt( pre-tax) 15% 14%
20% Risk free rate 12% 11%
40% Market risk premium 6% 6%Equity beta 1.583 1.1
During High growth period Transition period Stable growth periodCost of equity =E40+E42*E4 21.50% =F40+F42*F41 17.60% =G40+G42*G41
WACC =I37/(I37+K37)*G39*(1-B41)+K37/(I37+K37)*H4514.00% 13.00% 16.00%
Exhibit 32.10Forecasted FCF: Multiform Limited (amounts in Rupees million)
Period Growth rate EBIT(1-t) Capital expenditure Depn. NWC1 25% 187.5 368.8 300 2502 25% 234.4 460.9 375.00 312.53 25% 293.0 576.2 468.75 390.64 25% 366.2 720.2 585.94 488.35 25% 457.8 900.3 732.42 610.46 22% 558.5 1098.3 893.55 744.67 19% 664.6 1307.0 1063.33 886.18 16% 770.9 1516.1 1233.46 1027.99 13% 871.1 1713.2 1393.81 1161.5
10 10% 958.2 1884.6 1533.19 1277.7
Terminal value at the end of year 10 =H61*(1+G36)/(F47-G36) 8996.87
Present value of the terminal value 2536.24Value of the firm =J62+F64 3512.61
High Growth period
Transition period
Growth rate in revenues,EBIT, depreciation and capital expenditure
Decrease per year in the growth rate of revenues,EBIT,depreciation and capital expenditure
Net working capital as a percentage of revenues
Depreciation and amortisation
Net working capital as a percentage of revenues
Tax rate for all time to come
=I35/(I35+K35)*E39*(1-B41)+K35/(I35+K35)*C45
=I36/(I36+K36)*F39*(1-B41)+K36/(I36+K36)*E45
=F63/(1+B47)^A56/(1+D47)^(A61-A56)
Free Cash Flow to Equity (FCFE) Model ( see para 32.11)( Rs.in crore)
3 4 5 6 7
Profit after tax 24 29 28 32 38
190 220 240 266 294Investments 20 10
70 75 88 90 100Debt 129 140 150 161 177Preference
The FCFE forecast for the explicit period, years 4 through 8:4 5 6 7
29 28 32 38
30 20 26 28
5 13 2 10
11 10 11 16
-10 -10 0 0 FCFE 15 15 15 16Cost of equity 18.27%The constant FCFE 10%Equity value (at Formula used Rs. 139.53
=NPV(B86,C85:G85)+G85*(1+B87)/(B86-B87)/(1+B86)^(G79-B69)
Preference dividendFixed assets (net)
Net current assets
(Profit after tax - Preference dividend )
- ( Capital expenditure -Depreciation )
- (Change in net current assets)
+ ( New debt issue - debt repayment )
-( Change in investment in marketable securities)
Two Stage Growth Model
High Growth rate period Stable Growth Period
6%
30%
15%1 2 : 3
12%7%1.0
Exhibit 32.9Forecasted FCF: Exotica Corporation
(Rs.in million)5 Terminal year
6442.04 6828.56805.26 853.57483.15 512.14
161.05
175.69 115.96146.41 396.19
398.59 million rupees=H23/(E27-H4)/(1+D27)^G17 2,188.70 million rupees
2,587.29 million rupees
Three Stage Growth Model
is equal to growth rate in depreciation
Debt : Equity
1.5 : 1
10% 1 : 1
0 : 1
20%
12%
10%
6%1.00
Stable growth period=G40+G42*G41 16.00%
=I37/(I37+K37)*G39*(1-B41)+K37/(I37+K37)*H4516.00%
Exhibit 32.10Forecasted FCF: Multiform Limited (amounts in Rupees million)
∆NWC FCF WACC50 68.8 14.00% 60.31
62.5 85.9 14.00% 66.1378.1 107.4 14.00% 72.5197.7 134.3 14.00% 79.51
122.1 167.8 14.00% 87.18134.3 219.4 13.00% 100.85141.5 279.4 13.00% 113.66141.8 346.5 13.00% 124.72133.6 418.1 13.00% 133.18116.2 490.7 13.00% 138.34
Sum= 976.37million rupees
million rupeesmillion rupees
Stable Growth period High
Growth Period
Transition Period
Stable Growth Period
Present value
Free Cash Flow to Equity (FCFE) Model ( see para 32.11)( Rs.in crore)
8
40
324
109192
The FCFE forecast for the explicit period, years 4 through 8:8
40
30
9
15
016
crores=NPV(B86,C85:G85)+G85*(1+B87)/(B86-B87)/(1+B86)^(G79-B69)
Exhibit 34.3
Balance Sheet of Alpha Company and Beta CompanyPart A: Before Merger Part B: After Merger
Liabilities
Share capital (10 par 4000 1000 4600 4600
Capital reserve - - 400 1900
Share premium 2000 500 2500 2000
General reserve 5000 1000 6000 5000
P&L account 1000 500 1500 1000
Loan funds 4000 2500 6500 6400
2000 15003500 3600
18000 7000 25000 24500
AssetsNet fixed assets 7000 3000 10000 10200
Investments 3000 500 3500 3400
Current assets 7000 3000 10000 9900
1000 5001500 1000
18000 7000 25000 24500
Share swap ratioNo.of Alfa shares 3
for Beta shares 5
10
600
Net fixed assets 3200
Investments 400
Current assets 2900
Current liabilities 1600
Loan funds 2400
Alfa Company
Beta Company
Pooling Method
Purchase Method
Current liabilities and provisions
Miscellaneous expenditure
Par value of shares of each company
After the merger the capital of Alfa will increase by
On revaluation under the 'purchase method', the revised
values are:
Exhibit 33.5 Determination of Value Created by a New Strategy
------------------------- -------- -------- -------- -------- -------- --------Current Income Statement ProjectionsValue 1 2 3 4 5
(Year 0)------------------------- -------- -------- -------- -------- -------- --------Sales 1000 1100 1210 1331 1464 1611 Gross Margin 250 275 303 333 366 403 S & G.a. 100 110 121 133 146 161 Profit Before Tax 150 165 182 200 220 242 Tax 60 66 73 80 88 97
-------- -------- -------- -------- -------- --------Net Profit 90 99 109 120 132 145
-------- -------- -------- -------- -------- --------Balance Sheet Projections
Fixed Assets 300 330 363 399 439 483 Current Assets 200 220 242 266 293 322
-------- -------- -------- -------- -------- --------Total Assets 500 550 605 666 732 805 Equity 500 550 605 666 732 805
-------- -------- -------- -------- -------- --------Cash Flow Projections
Profit After Tax 99 109 120 132 145 Depreciation 30 33 36 40 44 Capital Expenditure 60 66 73 80 88Increase in Current Assets 20 22 24 27 29
-------- - - - - -Operating Cash Flow 49 54 59 65 72
-------- - - - - -Present Value Factor 0.862 0.743 0.641 0.552 0.476PV of Operating Cash Flow 42 40 38 36 34 ------------------------- -------- -------- -------- -------- -------- --------PV of Operating Cash Flow Stream 190 Residual value 905 PV of Residual Value 431 Total Share Holder Value 621 Pre-Strategy VAlue 563 Value of Strategy 59 ------------------------- -------- -------- -------- -------- -------- --------
ASSUMPTIONS
Annual rate of increase in Sales 10.00%Gross Margin 25.00%S and G.A: 10.00%Fixed Assets 10.00%Current Assets 10.00%Discount rate for Present Value 16.00%Tax rate 40.00%
Exhibit 33.9
Depreciation Charge and Capital Charge under Alternative Methods
Cost of the equipment 100,000Economic life(in years) 5Cost of capital 15%Salvage value 0
Part A: Straight Line Method1 2 3 4 5
Capital 100,000 80,000 60,000 40,000 20,000Depreciation 20,000 20,000 20,000 20,000 20,000Capital charge 15,000 12,000 9,000 6,000 3,000Sum 35,000 32,000 29,000 26,000 23,000
Part B: Sinking Fund MethodCapital 100,000 85,168 68,112 48,497 25,940Depreciation 14,832 17,056 19,615 22,557 25,940Capital charge 15,000 12,775 10,217 7,275 3,891Sum(Annuity) 29,832 29,832 29,832 29,832 29,832=PMT($B$56,$B$55,-($B$54-$B$57))
Exhibit 33.5 Determination of Value Created by a New Strategy
--------Residualvalue5+
--------1611 403 161 242 97
--------145
--------
483 322
--------805 805
--------
145 44 440 -
145 -
--------
--------
Exhibit 33.11Free Cash Flow
Assumptions:Growth rate in assets & revenues in the first period 20%Length of the first growth period in years 3Growth rate in assets & revenues in the second period 12%Length of the second growth period in years 2Growth rate in assets & revenues after the second growth period 8%Ratio of net profit after tax to net assets 0.12Opportunity cost of capital for the proposed acquisition 11%
Free Cash Flow ( Rs. in million)Year 1 2 3 4 5 6 7
Asset value( Beginning) 50.00 60.00 72.00 86.40 96.77 108.38 117.05Net operating profit after taxe 6.00 7.20 8.64 10.37 11.61 13.01 14.05Net investment 10.00 12.00 14.40 10.37 11.61 8.67 9.36Free cash flow -4.00 -4.80 -5.76 0.00 0.00 4.34 4.68Growth rate 20% 20% 20% 12% 12% 8% 8%Value of the acquisition =NPV(E10,B17:G17)+G17*(1+E8)/(E10-E8)/(1+E10)^G13
Exhibit 33.12EVA Projection
Year 1 2 3 4 5 6 7Beginning capital 50.00 60.00 72.00 86.40 96.77 108.38 117.05NOPAT 6.00 7.20 8.64 10.37 11.61 13.01 14.05Cost of capital 11% 11% 11% 11% 11% 11% 11%Capital charge 5.50 6.60 7.92 9.50 10.64 11.92 12.88EVA 0.50 0.60 0.72 0.86 0.97 1.08 1.17Growth rate 20% 20% 20% 12% 12% 8% 8%PV of the EVA Stream =NPV(E10,B28:G28)+H28/(E10-E8)/(1+E10)^G23 24.05 EVA Valuation =B24+H30 74.05
Exhibit 33.11Free Cash Flow
Free Cash Flow ( Rs. in million)8
126.4115.17
8%74.05
Exhibit 33.12EVA Projection
X
International Capital Budgeting: Para 37.5 Illustration
45Risk-free rate of interest in India 11%Risk-free rate of interest in the US 6%Required rupee return 15%
Year0 -100 45.00 -45001 30 47.12 1413.72 40 49.35 1973.83 50 51.67 2583.74 60 54.11 3246.6
1,776.84 =NPV(B6,D9:D12)+D8
Foreign Currency Approach
0.036 =(1+B6)/(1+B4)-1Risk -adjusted dollar rate 0.0982 =(1+B5)*(1+B16)-1NPV in million dollars 39.485 =B8+NPV(B17,B9:B12)Rupee NPV of the project(Rs.million) 1776.8 =B18*B3
Current spot exchange rate of USD in Rupees
Cash flow in USD(million)
Expected exchange
rate(Rs per USD)
Cash flow in
rupees(million)
Home Currency Approach: NPV in rupees(million)
Risk premium implicit in the risk-adjusted rupee return
