Calculate the value of one equity share of X Ltd. from the following Information: Profit of the company (Before tax) 8000 crores Equity share…

CA Final · Advanced Financial Management · MTP · November 2024
Calculate the value of one equity share of X Ltd. from the following Information: Profit of the company (Before tax) 8000 crores Equity share capital of the Company 19000 crores No. of Equity Shares 380 crores Long run growth rate of the company 7% Risk free Rate of Return 9.50% Beta of the company 0.1 Market Risk Premium 3.10% Total Capital expenditure 20140 crore Chargeable Depreciation 17100 crore Total Increase in working capital 1755.60 crore New Debt to be issued for funding 2062.108 crore Tax Rate 30% Note: All calculation to rounded off upto 4 decimal points and final value of equity share to be rounded off upto 2 decimal points.

Suggested Answer and Working Notes:

Profit After Tax (PAT) or Net Income = 8000 crores (1 – 0.30) = 5600 crores Free Cash Flow to Equity (FCFE) = Net Income - Capital Expenditures + Depreciation -/+ Change in Net Working Capital + New Debt Issued - Debt Repayments + Net issue of Preference Shares - Preference Share Dividends Free Cash Flow to Equity (FCFE) = 5600 crores -20140 crore +17100 crore -1755.60 crore +2062.108 crore = 2866.508 crore Cost of Equity = Rf + ß (Rm – Rf) or Rf + ß Market Risk Premium = 9.50% + 0.1 x 3.10% = 9.81% Value of Equity = FCFE(1+g) / (Ke-g) = 2866.508 crore (1.07) / (0.0981-0.07) = 3067.1636 crore / 0.0281 = 109151.7295 crore Value of one Equity Share = 109151.7295 crore / 380 crore = 287.24 Alternatively, it can also be calculated by using per share basis as follows: FCFE per share = FCFE / No. of Equity Shares = 2866.508 crore / 380 crore = 7.5434 Value of per equity share = FCFE(1+g) / (Ke-g) = 7.5434(1.07) / (0.0981-0.07) = 8.0714 / 0.0281 = 287.24

Topics: Security Valuation

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