Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis - II - Question Paper

Current assets
212.93

Other liabilities & provision
144.53

Net Working capital
68.40


Investment in working capital = 79.20 – 68.40 =10.80

Particulars
2005
2006
2007
2008
2009
2010
2011

Growth rate (EPS)

10%
10%
10%
5%
5%
2%

Growth rate (capital Expenditure)

10%
10%
10%




Growth rate (depreciation)

10%
10%
10%
-5%
-5%
-5%

Growth rate (working capital)

20%
20%
20%




Net profit
7.85
8.6350
9.4985
10.4484
10.9708
11.5193
11.7497

Plus: Depreciation expenses
26.68
29.3480
32.2828
35.5111
33.7355
32.0487
30.4463

Less: Capital expenditure
44.06
48.4660
53.3126
58.6438




Less: Investment in working capital
10.8
12.9600
15.5520
18.6624




FCFE
-20.33
-23.4430
-27.0833
-31.3471
44.7063
43.5680
42.1960

Terminal value





364.2296


Total cash flow to equity





407.7977


Discounting factor

1.1359
1.2902
1.4654
1.6645
1.8906


Discounted value

-20.6295
-20.9829
-21.3819
26.8587
215.6949


Total Discounted value of free cash flow to equity





179.5593





Cash flow per share = 179.5593/ 5.60 = 32.0642

Value of share = (32.0642) (3) = 96.1925

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4. Asset based evaluation estimates a firm’s value by identifying the value of its assets. But there are a few issues using this model for evaluation. They are as under

· Assets listed on the balance sheet may not be traded often, so market values may not be readily available.

· Market values, if available, might not be efficient measures of intrinsic value if markets for the assets are imperfect.

· Market values, if available, may not represent the value in the particular use to which the asset is put in the firm. 1 might establish either the current replacement price for an asset or its current selling price (its liquidation value), but neither of these may be indicative of its value in a particular going concern. A building used in computer manufacturing may not have the identical value when used for warehousing groceries.

Earning:   Approval pending.