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Methodology: Capital Asset Pricing Model (CAPM) model is used to estimate the return on equity expected by any power generation company operating in India considering the specific characteristics of the pr subjective profitability
Methodology
Return on equity
Rs = Rf + s (Rm- Rf)
Beta value
Rf
Rate offered by the Indian government securities d (for Line 2 WHR project, based on 2002 - 03; Line is considered as risk free rate
Market return
Rm
Arithmetic mean of BSE SENSEX market return is considered for 10 years based on market economi
S.No Description
1 Beta value
7.34% 15.12%
6.11% 16.05%
used to estimate the return on equity ia considering the specific characteristics of the project type and not linked to
Methodology
Reference National Stock Exchange of India Limited "Surveillance in Stock Exchanges Module Work book"
Rate offered by the Indian government securities during project decision making period (for Line 2 WHR project, based on 2002 - 03; Line 3 WHR project, based on 2004 - 05) Reference book titled "Corporate finance theory and is considered as risk free rate Practice", by Dr.Aswath Damodaran Arithmetic mean of BSE SENSEX market return is considered for 10 years based on market economic situation after 1991. Ibbotson Associates (it is an international consulting firm provides a solution for calculating the equity risk premium for international markets.)
Unit
% %
Capitaline plus (Attachment 2) Reserve Bank of India - Central government securities(http://rbidocs.rbi.org.in/rdocs/Publications/PDF s/80303.pdf) BSE SENSEX (www.bseindia.com)
Reference National Stock Exchange of India Limited "Surveillance in Stock Exchanges Module Work book"
Capital line Plus (Capitaline is a sister product of capital market, India`s foremost investment fortnightly) Reference book titled "Corporate finance theory and Practice", by Dr.Aswath Damodaran Ibbotson Associates (it is an international consulting firm provides a solution for calculating the equity risk premium for international markets.)
Cost of capital calculation Formulae: Cost of Equity = Risk free rate + applicable beta value (Market return - Average risk free return)
Project Name Line 2 waste gas based WHR system (TG 3) Applicable Beta 1.02 Risk Free Rate 7.34% Market return 21.47% Average Risk Free Return 11.52% Market Risk Premium 9.95% Cost of Equity 17.5%
Beta Values of all Litsed Power Generating Companies in India at the time of Project Investment (TG 3) Company Name Beta
Beta Values of all Litsed Power Generating Companies in India at the time of Project Investment (TG 4) Company Name Beta
RELIANCE ENERGY 0.37 GUJARAT INDS 1.12 TATA POWER CO 1.01 NEYVELI LIGNITE 2.15 CESC LTD 0.41 BF Utility 1.07 Average beta value 1.02 Source:Capitaline plus (http://www.cline.capitaline.com/new/index.asp)
RELIANCE ENERGY 1.59 GUJARAT INDS 1.596 TATA POWER CO 1.49 NEYVELI LIGNITE 1.49 CESC LTD 1.05 BF Utility 0.74 Average beta value 1.33 Source:Capitaline plus (http://www.cline.capitaline.com/new/index.asp)
7.34% 11.52%
6.11% 10.56%
BSE SENSEX
Year
Open
High
Low 1980.06 3405.88 2891.45 2713.12 3096.65 2741.22 3042.25 3491.55 2594.87 7697.39 2828.48
Close 3346.06 3926.9 3110.49 3085.2 3658.98 3055.41 5005.82 3972.12 3262.33 8839.87 3377.28
Variation Annual Return 27.82% 14.26% -20.45% -0.93% 18.18% -16.48% 63.32% -23.75% -18.25% 170.99%
1993 2617.78 3459.07 1994 3436.87 4643.31 1995 3910.16 3943.66 1996 3114.08 4131.22 1997 3096.16 4605.41 1998 3658.34 4322 1999 3064.95 5150.99 2000 5209.54 6150.69 2001 3990.65 4462.11 2002 3262.01 21206.77 2003 3383.85 3758.27 *Source www.bseindia.com
-0.19%
21.47% 19.50%
Arithmetic Mean