Corporate Finance

Assignment


Company: Bank of India
Industry: Banking

Submitted by:
Prakash Philip Zacharia
Roll no 101, Sec B
XIME PGDM 2013-15


Bank of India
Bank of India (BoI) is an Indian state-owned commercial bank with headquarters in
Mumbai, Maharashtra, India. Government-owned since nationalization in 1969, Bank of
India has 4545 branches as on 31 December 2013, including 54 branches outside India,
and about 3214 ATMs.

Key Positions

Chairperson & Managing Director: Smt. V. R. Iyer
CFO Shri Krishnakumar K. Nair
Executive Director: Shri Arun Shrivastava , Shri R. Koteeswaran
Govt Nominee Dorector: Shri Anup Wadhawan
Part-time Non-Official Director:

Shri Neeraj Bhatia
Shri Kuttappan K. Nair
Shri Rajeev Lochan Bishnoi
Workmen Employee Director: Shri Antonio Maximiano Pereira
Shareholder Director:

Shri P.M. Sirajuddin
Shri Pramod Bhasin
Shri Umesh Kumar Khaitan


Stock Price of BOI as on 03/04/2014 - 232.25

Bonds Issued/ To be issued

Basel III dollar bond Bank of India is planning to issue a $300-$400
million worth of Basel III compliant bonds in overseas market. Basel III is
the latest international accounting norm for banks. The key difference of this bond
with Basel two bond is that buyers of Basel III compliant bonds will have to absorb
losses under certain conditions such as a dramatic fall in capital levels.

Application of CF concepts
1) Face Value of Stock = Rs 10
2) Last Dividend announced = 100% on FV = Rs 10

3) The risk free return rate is based on the G-Sec issued by the Govt of India. The current
risk free return rate in the month of April is 8.8%.

4) Beta for BOI stock = 1.16

5) Risk Free rate = 8.8%

6) Market Rate of Return = 21%

7) Cost of Equity Calculations
Market Risk Premium = Market Rate Risk Free Rate
= 21 8.8 = 12.2

E(R) = R
rf
+
PF
[E(R
m
) R
rf
Cost of Equity = 8.8 + 1.16(12.2)
Cost of Equity = 23.03%

8) Cost of Debt Calculation
Total Debt in 2012 = Rs 3,503,302,600,000
Interest Expense 2013 = Rs 228,849,300,000
Cost of Debt = (Interest Expense 2013/Total Debt 2012)*100
Cost of Debt = 6.53%

9) Market Value of Equity = Rs 187112800000

10) Market Value of Debt = Rs 4,185,003,900,000

11) Total Current Asset = Rs 617257000

12) Total Current Liability = Rs 3859269000

13) Net Working Capital
Net Working Capital = Total Current Asset - Total Current Liability
Net Working Capital = - Rs -3242012000
14) d/v = d/e+d = 0.957

15) e/v = e/e+d = 0.043


16) WACC Calculations
Corporate Tax = 34%
WACC
post-tax
= (1 T) k
d
D/V + k
e
E/V
WACC
post-tax
= (1-0.34)6.53*0.957 + 23.03(0.043)
WACC
post-tax = 5.11%

WACC tells us the return that both stakeholders - equity owners and lenders - can expect. WACC, in
other words, represents the investor's opportunity cost of taking on the risk of putting money into a
company.