Earnings before interest and taxes 100
Expected growth for next 5 years 10%
Expected growth after year 5 5%
Tax rate 40%
Debt ratio for the firm 20%
Cost of equity 12%
Pre-tax cost of debt 7%
Return on capital in high growth 12%
Return on capital in stable growth 10%
0 1 2
Expected Growth rate 10% 10% 10%
Reinvestment rate 83% 83% 83%
EBIT ₹ 100.00 ₹ 110.00 ₹ 121.00
Taxes ₹ 40.00 ₹ 44.00 ₹ 48.40
EBIT(1-t) ₹ 60.00 ₹ 66.00 ₹ 72.60
- Reinvestment ₹ 55.00 ₹ 60.50
FCFF ₹ 11.00 ₹ 12.10
Terminal Value
Present Value ₹ 9.96 ₹ 9.92
Value of Firm = ₹ 617.01 $ 670.42 $ 728.31
Value of Equity = ₹ 493.61 ₹ 536.34 ₹ 582.65
Value of Debt = ₹ 123.40 ₹ 134.08 ₹ 145.66
EBIT ₹ 100.00 ₹ 110.00 ₹ 121.00
Interest Exp ₹ 8.64 ₹ 9.39
EBT ₹ 101.36 ₹ 111.61
Taxes ₹ 40.54 ₹ 44.65
Net Income ₹ 60.82 ₹ 66.97
- Reinvestment ₹ 55.00 ₹ 60.50
+ New Debt Issued ₹ 10.68 ₹ 11.58
FCFE ₹ 16.50 ₹ 18.05
Terminal Value of Equity
Present Value ₹ 14.73 ₹ 14.39
Value of Equity = ₹ 493.61
Capital Structure
Debt at end of year
Cost of Equity 12%
Pre-tax Cost of Debt 7%
After-tax Cost of Debt 4.200%
Cost of Capital 10.4400% 10.44% 10.44%
1 2 3
3 4 5 Terminal Year
10% 10% 10%
83% 83% 83% 50.0% 0.5
₹ 133.10 ₹ 146.41 ₹ 161.05 ₹ 169.10 ₹ 177.56
₹ 53.24 ₹ 58.56 ₹ 64.42 ₹ 67.64 ₹ 71.02
₹ 79.86 ₹ 87.85 ₹ 96.63 ₹ 101.46 ₹ 106.54
₹ 66.55 ₹ 73.21 ₹ 80.53 ₹ 50.73 ₹ 53.27
₹ 13.31 ₹ 14.64 ₹ 16.11 ₹ 50.73 ₹ 53.27
₹ 932.56 ₹ 979.18
₹ 9.88 ₹ 9.84 ₹ 9.80 ₹ 567.60
$ 791.04 $ 858.98 $ 932.56 979.18
₹ 632.83 ₹ 687.19 ₹ 746.05 ₹ 783.35
₹ 158.21 ₹ 171.80 ₹ 186.51 ₹ 195.84
₹ 133.10 ₹ 146.41 ₹ 161.05 ₹ 169.10
₹ 10.20 ₹ 11.07 ₹ 12.03 ₹ 13.06
₹ 122.90 ₹ 135.34 ₹ 149.03 ₹ 156.05
₹ 49.16 ₹ 54.13 ₹ 59.61 ₹ 62.42
₹ 73.74 ₹ 81.20 ₹ 89.42 ₹ 93.63
₹ 66.55 ₹ 73.21 ₹ 80.53 ₹ 50.73
₹ 12.55 ₹ 13.59 ₹ 14.71 ₹ 9.33
₹ 19.74 ₹ 21.58 ₹ 23.60 ₹ 52.22
₹ 746.05
₹ 14.05 ₹ 13.72 ₹ 13.39 ₹ 423.33
10.44% 10.44% 10.44%
4 5 6
1 2 3 4 5 6 7
WC 64.15 1995 1996 1997 1998 1999 2000 2001
Revenues 641.5 833.95 1084.135 1409.376 1832.188 2381.845 2977.306 3572.767
EBIT 128.3 166.79 216.827 281.8751 366.4376 476.3689 595.4611 714.5534
Capex 150.5 195.65 254.345 330.6485 429.8431 558.796 603.4996 651.7796
Dep 125.1 162.63 211.419 274.8447 357.2981 464.4875 520.226 582.6532
Working Ca 0.1 83.395 108.4135 140.9376 183.2188 238.1845 297.7306 357.2767
Growth Hig 0.3
Tax Rate 0.36
Change in Workiign ca 19.245 25.0185 32.52405 42.28127 54.96564 59.54611 59.54611
EBIAT 106.7456 138.7693 180.4001 234.5201 304.8761 381.0951 457.3142
FCFF 54.4806 70.82478 92.07221 119.6939 155.602 238.2754 328.6416
Cost Of capital 0.1036 0.1036 0.1036 0.1036 0.1036 0.100675 0.100675
PV of FCFE 49.36626 58.15162 68.50046 80.69101 95.05103 134.0061 167.9225
growth Rat 0.25 0.2
Capex 0.08
Depreciati 0.12
8 9 10
2002 2003 2004 2005 2006
4108.682 4519.55 4745.528
821.7364 903.91 949.1055
703.922 760.2357 821.0546
652.5716 730.8801 818.5858
410.8682 451.955 474.5528
53.5915 41.08682 22.59775
525.9113 578.5024 607.4275
420.9694 508.06 582.3609 611.479
0.100675 0.100675 0.100675 TV 12288.56
195.4239 214.2807 223.1522
4708.799
0.15 0.1 0.05
