Professional Documents
Culture Documents
1p
n
r
pv
1000
5
5.00%
Rs. 783.53
2n
p
annual amount paid
amount per installment
coupon
r
value
Total Value
Other method
a)
10%
Rs. 620.92
Rs. 1,231.15
Rs. 1,000.00
12%
8% paid quaterly
Rs. 697.99
80
12%
10% semi annually
Rs. 862.35
100
5 present value
n
coupon rate of interest
1
2
3
4
5
6
7
8
9
10
OR
9.98% n
coupon
1135
10
0.10
Rs. -1,135.00
100
100
100
100
100
100
100
100
100
100
1100.00
8%
8% using rate function
5years
8%
selling value
9n
par value
present value
redemption amount
YTM (without premium)
TAX
COST OF DEBT
925
12
1000
850
1000 with premium
12.48% YTM (with premium)
35.00%
8.11
13 Bond A
Par Value
n
40000
20 years
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
-40000
0
0
0
0
0
0
0
0
0
0
0
0
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2500
2500
2500
2500
2500
2500
0.943396
0.889996
0.839619
0.792094
0.747258
0.704961
0.665057
0.627412
0.591898
0.558395
0.526788
0.496969
0.468839
0.442301
0.417265
0.393646
0.371364
0.350344
0.330513
0.311805
0.294155
0.277505
0.261797
0.246979
0.232999
0.219810
0.207368
0.195630
0.184557
0.174110
0.164255
0.154957
0.146186
0.137912
0.130105
36
37
38
39
40
2500
2500
2500
2500
42500
0.122741
0.115793
0.109239
0.103056
0.097222
Cash Flows
14
1
2
3
4
5
6
7
8
225.00
212.50
200.00
187.50
175.00
162.50
150.00
137.50
1450.00
15 par value
n
1000
875
750
625
500
375
250
125
Present Value of Bond
100
9
Cash Flows
1
2
3
4
5
6
7
8
9
yield to the investor
18 Principle
n
rate
-75
9
9
9
10
10
10
11
11
116
15.32%
100
100
100
100
100
100
100
100
100
50 crs
10 years
9%
1
2
3
4
5
6
7
8
9
-400
45.00
45.00
45.00
45.00
45.00
45.00
170.00
158.75
147.50
500
500
500
500
500
500
375
250
125
10
136.25
13.05%
30%
9.14%
YTM
TAX
Cost of Debt
21
Years
10% @ 5 years
1000
-140
-140
-140
-140
-1240
15.47%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
IRR (YTM)
TAX
Cost of Debt
12% @ 10 years
1000
-140
-140
-140
-140
-140
-140
-140
-140
-140
-1260
14.60%
15.47%
40%
9.28%
14.60%
40%
8.76%
Preferred Stock
1
43.5
2.5
5.75%
Dividend Yield
2 IRR
Coupon
50
6% Par Value
7%
Value
Amount willing to be paid
(PV)
7
116.67
Equity Shares
dividend
Makret price after 3 yrs
Expected rate
Rs 3 for 3 yrs
Rs 60
15%
3
0.870
3
63
Present Value
0.756
0.658
Price you will be willing to pay this year for the equity share
Year 1
equity base at starting
profit
retaied earning
dividend payout
Growth rate of dividend
Year 2
1000
100
60
40
1060
106
63.6
42.4
6.00%
25
18
3.6
1.44
0.20
0.40
12.00%
17.76%
4 Market price
D1
G
Ke
120
12
8%
18.00%
5 Market price
D1
Payout ratio
ROE
Growth Rate
Ke
200
18
30%
5%
3.50%
12.50%
6 Market Price
D1
G
Ke
140
12
7%
15.571%
Profit
No of Shares
EPS
D1
Market Price
Payout Ratio
ROE
Growth Rate
Ke
1250
100
12.5
12.5
180
100%
0
6.9%
16 Part 1
No Growth Rate
Po
30
With Growth Rate
Po
63
Po
Part 2
P3
60.20
Present Value
53.43
15%
Rs. 497.18
40 NPER
0.05
686.36 interest component for 40 months
142.05 principal repayment at the end of 40 months
828.41
Rs. 828.41
20 par value
20 years
1000
80
50 par value
15 years
1000
30
1050
12.70%
8.25%
Bond B
Par Value
n
expected rate
0 Present Value
0
0
0
0
0
0
0
0
0
0
0
937.6780445
884.6019288
834.5301215
787.2925674
742.7288372
700.6875823
661.026021
623.6094538
588.3108054
555.0101938
523.5945225
493.9570967
465.997261
439.6200576
414.7359034
391.2602862
369.1134775
435.2753273
410.6371012
387.3934917
365.4655582
344.7788285
325.2630458
306.85193
289.4829528
273.0971253
257.6387974
4131.942978
17941.5813
0.925925926
0.85733882
0.793832241
0.735029853
0.680583197
0.630169627
0.583490395
0.540268885
Present Value of Bond
208.33
182.18
158.77
137.82
119.10
102.40
87.52
74.29
1070.42
125
125
14% @ 15 years
1000
-140
-140
-140
-140
-140
-140
-140
-140
-140
-140
-140
-140
-140
-140
-1280
14.31%
14.31%
40%
8.59%
rred Stock
100
y Shares
2.609
2.268
41.424
46.301
Year 3
1123.6
112.36
67.416
44.944
6.00%
12.50%
75% payout
1250
100
12.5
9.375
180
75%
16%
4%
9.21%
TOTAL
P3 = 3 x (1.05)^3 x (1.04)
0.10 - 0.04
since fourth year growth rate is constant i.e. 1.04
= 60.19/(1.10)^3 + 8.21
Question No.
1
share
curent mp
warrant
25
20
0
b)
current mp
warrant
30
5
c)
current mp
each oppourtunity
warrant
a)
30
Rs 25 for 3 shares
warrant value
37.5
straight bond
@
selling price
8%
1000
par value
n
current mp
warrants
oppoutunity
firms staright bond yield
1000
20 years
20
50 shares
1 share @ Rs 20
12%
oppourtunity value
warrant
3
150
par value
1000
pmt amount
Rate to be charged
5
bond + warrant
n
pmt
warrant ( 5 rights)
ordinary share yield
bond component
total value of warrants
Rs. 99.92
1000
30 years
100
15
14%
Rs. 719.89
Rs. 280.11
11
bond component
bond component
Rs. 28.01
Rs. 648.76
Rs. 863.78
n
conversion price
or
straight bond with warrants
warrants ( 5 shares)
current mp
tax
EBIT
20
50
10%
50
40
50%
20% of Capital Employed
Current Scenario
1000000
5000000
25000000
30000000
6000000
0
6000000
3000000
3000000
3.00
10000
100000
200000
250000
250000
800000
144000
25000
EBT
TAX
PAT
EPS
P/E ratio
Market Price of shares
10
par value
Conversion ratio
Conversion value
straight bond component
119000
47600
71400
7.14
12
85.68
1000
38.83
no of shares x market value of shares
699
Rs. 877.11
As long as the market price of equity share is less than convettible bonds it will act as a straight bond. The
value. In future when the current market price is more and equity shares will have value. Then the conve
higher than the striaght bond value.
Option to convert will be usefull to investor only when market value of shares is less than the right being
First Year
Second year
Third Year
12
Rs. 877.11
Rs. 884.82
20
36
14
12%
720
a)
b)
73.47
120
1050
-7.92
c)
14
HOMEWORK
n
12% coupon bond
Shares per bond
1057.92
20
80
13
1
2
3
4
5
6
7
8
9
10
551
606
667
734
807
888
977
1074
1182
1300
rs
rs
rs
rs
rs
90
75
15
bond + warrant
@
Present Value of bond
warrant value
Par Value
6%
Rs. 803.64
price you are charging investors for giving the oppourtunity to buy the equity
Rs. 196.36 shares in the future (premium one pays for getting the right to buy the right to
1000
buy in the future)
150 warrant
850 bond component present value
10
10%
per share
convertible bond
8%
each
Convertible Bond
Warrants
before conversion
after raising
warrant is
( on issue)
exercised
after conversion money
1000000
1200000
1000000
1040000
5000000
6000000
5000000
5200000
9000000
1800000
25000000
25000000
25000000
25000000
10000000
10000000
10000000
40000000
40000000
40000000
42000000
8000000
8000000
8000000
8400000
800000
0
1000000
1000000
7200000
8000000
7000000
7400000
3600000
4000000
3500000
3700000
3600000
4000000
3500000
3700000
3.60
3.33
3.50
3.56
10000
100000
200000
250000
250000
800000
144000
20000
22500
225000
125000
200000
250000
800000
144000
0
164000
65600
98400
6.56
12
78.72
share price
124000
49600
74400
7.44
12
89.28
144000
57600
86400
3.84
12
46.08
25.75
market value
18
ettible bonds it will act as a straight bond. The right to covnert holds no
equity shares will have value. Then the convertible bond value will be
he striaght bond value.
ket value of shares is less than the right being offered by the warrant
1 Plan A Capital
No of eq. shares
Tax
Sales
EBIT
Interest
EBT
Tax
PAT
EPS
10000
500
40% Par value of equity
1:01
800
3000
600
2400
960
1440
2.88
1:03
800
3000
300
2700
1080
1620
2.16
sales
EBIT
Interest
EBT
Tax
PAT
EPS
808
3040
600
2440
976
1464
2.928
808
3040
300
2740
1096
1644
2.192
1.33%
1.00%
1.33%
1.00%
Operating Risk
133.33%
133.33%
1.67%
125.00%
1.48%
111.11%
Total Risk
258.33%
244.44%
Plan B Capital
No of eq. shares
Tax
Sales
EBIT
Interest
EBT
Tax
PAT
EPS
sales
EBIT
Interest
EBT
10000
500
40% Par value of equity
1:01
800
2800
600
2200
880
1320
2.64
808
2848
600
2248
750
750
1:03
800
2800
300
2500
1000
1500
2
808
2848
300
2548
Tax
PAT
EPS
899.2
1348.8
2.6976
1019.2
1528.8
2.0384
1.71%
1.00%
1.71%
1.00%
Operating Risk
171.43%
171.43%
2.18%
127.27%
1.92%
112.00%
Total Risk
298.70%
283.43%
Plan C Capital
No of eq. shares
Tax
Sales
EBIT
Interest
EBT
Tax
PAT
EPS
10000
500
40% Par value of equity
1:01
800
2600
600
2000
800
1200
2.4
sales
EBIT
Interest
EBT
Tax
PAT
EPS
808
2656
600
2056
822.4
1233.6
2.4672
808
2656
300
2356
942.4
1413.6
1.8848
2.15%
1.00%
2.15%
1.00%
215.38%
215.38%
2.80%
129.99999999999900%
2.43%
113.04%
345.38%
328.43%
1:01
1:03
750
1:03
800
2600
300
2300
920
1380
1.84
TOTAL RISK
PLAN A
PLAN B
PLAN C
258.33%
298.70%
345.38%
244.44%
283.43%
328.43%
1:01
133.33%
171.43%
215.38%
1:03
133.33%
171.43%
215.38%
1:01
125.00%
127.27%
130.00%
1:03
111.11%
112.00%
113.04%
OPERATING RISK
PLAN A
PLAN B
PLAN C
FINANCIAL RISK
PLAN A
PLAN B
PLAN C
2
EBIT
INTEREST
EBT
TAX
PAT
PREF DIVIDEND
EAT
No OF EQUITY SHARES
EPS
7500000
A
ISSUANCE OF EQUITY SHARES
900000
56000
844000
295400
548600
108000
440600
40000
11.015
900000
56000
844000
295400
548600
358000
190600
20000
9.53
15
12
165.225
114.36
Face value
Capital Amount
10 Tax rate
1000000
P/E
B
10% PREFERENCE SHARES
a
ISSUANCE OF EQUITY SHARES
EBIT
INTEREST
EBT
TAX
PAT
PREF DIVIDEND
EAT
900000
56000
844000
295400
548600
108000
440600
No OF EQUITY SHARES
EPS
3
40000
11.015
sales
sp/unit
vc
total fixed cost
total cost
asset t/o
Assets
5
3
1500000
4.5E+12
5 times
10
debts
equity shares
30%
300000
8%
600000
9%
40%
BASE
COST OF DEBT
CASE 1
COST OF DEBT
tax
BASE
SALES
COSTS
EBIT
INTEREST
EBT
TAX
PAT
No OF EQUITY SHARES
EPS
mps
70%
700000
400000
CASE 1
5000000
4500000
500000
24000
476000
190400
285600
70000
4.08
48.96
CHANGE IN EBIT
CHANGE IN SALES
CHANGE IN EPS
6300000
5925000
375000
54000
321000
128400
192600
40000
4.815
57.78
(case 1 to 1% inc in case 1)
0.04
0.056
0.01
0.01
0.042016807
-0.065420561
OPERATING RISK
FINANCIAL RISK
TOTAL RISK
4
1.050420168
4.201680672
(base to 1% inc)
5.6
1.168224299
6.542056075
1% INCREASE TO BASE
BASE
SALES
VC
FC
5000000
2500000
1500000
5050000
2525000
1500000
EBIT
INTEREST
EBT
TAX
PAT
NO OF EQUITY SHARES
EPS
1000000
125000
875000
350000
525000
100000
5.25
1025000
125000
900000
360000
540000
100000
5.4
CHANGE IN EBIT
CHANGE IN SALES
CHANGE IN EPS
0.025
0.01
0.028571429
OPERATING RISK
FINANCIAL RISK
TOTAL RISK
2.5
1.142857143
2.857142857
Inference: Given that we expect the sales to increase to 70 lacs, we would prefer to go debt option ( highe
for debt financing. Thus, we decide what option to choose depending upon the expected change in sales a
40000
OPTION 1
EQUITY SHARES
(50000 @ Rs 10)
OPTION 2
EQUITY SHARES
(25000 @ Rs 10)
8% 2500 DEBENTURES
@ RS 100
EBIT
INTEREST
EBT
TAX
PAT
PREFERENCE DIVIDEND
PROFIT
NO OF EQUITY SHARES
EPS
P/E
MPS
40000
0
40000
16000
24000
0
24000
50000
0.48
10
4.8
80000
OPTION 1
EQUITY SHARES
40000
20000
20000
8000
12000
0
12000
25000
0.48
9
4.32
OPTION 2
EQUITY SHARES
(50000 @ Rs 10)
EBIT
INTEREST
EBT
TAX
PAT
PREFERENCE DIVIDEND
PROFIT
NO OF EQUITY SHARES
EPS
P/E
MPS
(25000 @ Rs 10)
8% 2500 DEBENTURES
@ RS 100
80000
0
80000
32000
48000
0
48000
50000
0.96
10
9.6
120000
OPTION 1
EQUITY SHARES
(50000 @ Rs 10)
EBIT
INTEREST
EBT
TAX
PAT
PREFERENCE DIVIDEND
PROFIT
NO OF EQUITY SHARES
EPS
P/E
MPS
80000
20000
60000
24000
36000
0
36000
25000
1.44
9
12.96
120000
0
120000
48000
72000
0
72000
50000
1.44
10
14.4
RISK FREE
MARKET RISK PREMIUM
TAX
UNLEVERED BETA
OPTION 2
EQUITY SHARES
(25000 @ Rs 10)
8% 2500 DEBENTURES
@ RS 100
120000
20000
100000
40000
60000
0
60000
25000
2.4
9
21.6
5%
6%
40%
1.2
PLANS
D/E
1
2
3
4
Wd
0
0.25
0.67
1.5
0
1/5
2/5
3/5
4/5
Cost of equity
7
1990
1991
1992
1993
1994
amount of debt
12%
12%
13%
15%
18%
0
125000
225000
300000
350000
INFERENCE:
WACC LEAST - HIGHEST MARKET PRICE PER SHARE - HIGHEST VALUE OF FI
TAX
RISK FREE RATE
MARKET RISK PREMIUM
40%
6%
4%
BASE
NO OF EQUITY SHARES
1000000
40
10
4.040
10.10%
2
1.025
0.466
4.80%
60000000
20000000
EBIT
INTEREST
EBT
TAX
PAT
NO OF EQUITY SHARES
EPS
8%
8333000
1600000
6733000
2693200
4039800
1000000
4.04
250
Rs 10
3:01
800
3000
900
2100
840
1260
5.04
808
3040
900
2140
856
1284
5.136
1.33%
1.00%
133.33%
1.90%
142.86%
276.19%
250
Rs 10
3:01
800
2800
900
1900
760
1140
4.56
808
2848
900
1948
779.2
1168.8
4.6752
1.71%
1.00%
171.43%
2.53%
147.37%
318.80%
250
Rs 10
3:01
800
2600
900
1700
680
1020
4.08
808
2656
900
1756
702.4
1053.6
4.2144
2.15%
1.00%
215.38%
3.29%
152.94%
368.33%
3:01
276.19%
318.80%
368.33%
3:01
133.33%
171.43%
215.38%
3:01
142.86%
147.37%
152.94%
C
8% DEBENTURES
900000
256000
644000
225400
418600
108000
310600
20000
15.53
10
155.3
40%
ASSETS
1000000
fv
TOTAL
1000000
1000000
INCREASE IN SALES BY 1%
FOR BASE CASE
5050000
4530000
520000
24000
496000
198400
297600
70000
4.251428571
51.01714286
INCREASE IN SALES BY 1%
CASE 1
6363000
5967000
396000
54000
342000
136800
205200
40000
5.13
61.56
1% INCREASE TO EQUITY
CASE 1
EQUITY
7000000
2800000
2000000
7070000
2828000
2000000
1% INCREASE TO DEBT
CASE 2
DEBT
7000000
2800000
2000000
7070000
2828000
2000000
2200000
125000
2075000
830000
1245000
130000
9.576923077
2242000
125000
2117000
846800
1270200
130000
9.770769231
2200000
275000
1925000
770000
1155000
100000
11.55
0.019090909
0.01
0.020240964
0.019090909
0.01
0.021818182
1.909090909
1.060240964
2.024096386
1.909090909
1.142857143
2.181818182
d prefer to go debt option ( highest eps). But if the sales lowers down, the risk will become very high if i go
n the expected change in sales and its effect on the risk the firm may bear.
OPTION 3
EQUITY SHARES
(25000 @ Rs 10)
10% 2500 PREFERENCE SHARES
@ RS 100
40000
40000
16000
24000
25000
0
25000
0
9
0
OPTION 3
EQUITY SHARES
2242000
275000
1967000
786800
1180200
100000
11.802
(25000 @ Rs 10)
10% 2500 PREFERENCE SHARES
@ RS 100
80000
80000
32000
48000
25000
23000
25000
0.92
9
8.28
OPTION 3
EQUITY SHARES
(25000 @ Rs 10)
10% 2500 PREFERENCE SHARES
@ RS 100
120000
120000
48000
72000
25000
47000
25000
1.88
9
16.92
Kd Post tax
B levered
4.2
4.8
6
7.2
Ke
1.200
1.380
1.682
2.280
We
12.20
13.28
15.09
18.68
1
4/5
3/5
2/5
4.080
Interest
KD
0
8%
10%
11%
14%
29.48
EBIT
0.00%
4.80%
6.00%
6.60%
8.40%
100000
100000
100000
100000
100000
37.50
10
4.626
12.34%
4
1.5839
0.466
5.10%
58128365
32.36
10
5.440
16.81%
8
2.7019
0.466
5.70%
56181799
21.70
10
6.559
30.22%
20
6.0561
0.466
6.72%
55425433
20000000
30000000
8.50%
20000000
40000000
9.50%
20000000
50000000
11.20%
8333000
2550000
5783000
2313200
3469800
750000
4.63
8333000
3800000
4533000
1813200
2719800
500000
5.44
8333000
5600000
2733000
1093200
1639800
250000
6.5592
4/5
INTEREST
0
10000
22500
33000
49000
WACC
12.20
11.58
11.45
11.79
30.78
EBT
100000
90000
77500
67000
51000
TAX (40%)
40000
36000
31000
26800
20400
PAT
60000
54000
46500
40200
30600
NO OF EQUITY
SHARES
100000.00
75000.00
58333.33
46102.15
37501.00
EPS MPS
0.60
0.72
0.80
0.87
0.82
5.00
6.00
6.13
5.81
4.53
MVe
500000.00
450000.00
357692.31
268000.00
170000.00
MVd
0.00
125000.00
225000.00
300000.00
350000.00
MVf
500000.00
575000.00
582692.31
568000.00
520000.00
WACC
12.00%
10.43%
10.30%
10.56%
11.54%
cost
52125
1
2
3
4
5
6
-52125
12000
12000
12000
12000
12000
12000
10.09%
Net Present Value (outflow - inflow)
Initial Outflow
200
-200
235
-65
300
1
2
3
NPV
3
gas powered
intial outflow
17500
1
2
3
4
5
6
5000
5000
5000
5000
5000
5000
NPV
S
INITIAL OUTFLOW
1
2
3
10000
-10000
3000
3000
3000
4
5
IRR
NPV
3000
3000
15.24%
Rs. 814.33
PI
1.081
If looked as stand alone project, both have positive NPV and IRR is greater cost of capital. But wh
IRR. The scale of project differes, the IRR and npv tend to differ. We normally look at NPV as a b
ALWAYS CHOOSE TO GO BY
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
A
6
cost
10000000
1
12000000
Years
Value
7
1
2
3
50000
37500.00
28125.00
21093.75
4
5
15820.31
11865.23
Years
1
2
3
4
5
20692
33461
46923
67308
INFLOW
10000
10692
12769
13462
20385
Cost
additional investment
3500000
5000000
700000
Initial Investment
Years
8500000
Annual Savings
1
2
3
4
5
6
Operating Costs
1200000
1200000
1200000
1200000
1200000
1200000
PRINCIPAL
700000
700000
700000
700000
700000
700000
DEP
done in class
1000000
750000
562500
421875
316406.25
237304.6875
1
2
3
4
5
250000
187500
140625
105468.75
79101.5625
59326.17188
17
done in class
18
done in class
16
done in class
Present Values
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Rs. -2,071.16
Rs. 2,229.22
Rs. 7,715.36
Rs. 5,486.15
Rs. -12,142.32
Rs. -7,541.56
Rs. -569.27
Rs. 6,972.29
Rs. -17,624.53
Rs. -17,098.87
Rs. -14,498.11
Rs. 2,600.75
Rs. -6,517.79
Rs. -8,442.70
Rs. -10,071.16
Rs. -1,628.46
Rs. -73,202.16
Rs. 2,229.22
Rs. 7,715.36
Rs. 5,486.15
Rs. 6,972.29
Rs. 2,600.75
25003.77259
Node A
Node B
Node C
Initial Outlay
NPV
Post Abandonment
100000
0.3
0.1
0.6
100000
11115.70248
Node A
Node B
Node C
0.3
0.1
0.6
Initial Outlay
NPV
100000
13595.04132
2479.34
10
Old Machinery
Value
1
2
3
4
5
6
7
8
1000000
750000
562500
421875
316406
237305
177979
133484
100113
100000
100000
100000
100000
100000
11
Manufacturing
1
2
3
4
5
1
2
3
4
5
100000
200000
300000
400000
500000
1
2
3
4
5
937,500.00
937,500.00
937,500.00
937,500.00
937,500.00
1
2
3
4
5
500000
75000
500000
400000
300000
200000
100000
0
Buying
Machine Value
Slavage Value
Saving
1
2
3
200000
200000
200000
4
5
12
Value of Machinery
Years
200000
200000
300000
Old Machine
-300000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Years
15
160000
160000
160000
160000
160000
160000
160000
160000
160000
160000
160000
160000
Machine A
Initial Expense
10000000
1
2
3
4
5
6
7
8
NPV
4000000
4000000
4000000
-6000000
4000000
4000000
4000000
4000000
Rs. 14,509,570.24
Rs. 4,509,570.24
12
5000000
4000000
3000000
2000000
1000000
0
1
2
3
4
5
Additional Working capital
Total Investment
1000000
6000000
1
2
3
4
5
13
Operating Income
2000000
2000000
2000000
2000000
2000000
Machinery A
1
2
3
4
5
6
7
8
14
1
-10000000
4000000
4000000
4000000
4000000
-6000000
4000000
4000000
4000000
Rs. 15,130,491.56
Rs. 5,130,491.56
-25
5
2
3
4
10
15
20
27%
Rs. 37.74
IRR
NPV
Since, NPV is a better jugde of two projects, We would on the basis of NPV choose the first opt
of the other option
18
INITIAL OUTLAY
WORKING CAPITAL
10000000
4000000
14000000
100000
120
60
1500000
40%
12%
No of units sold
SP
VC
FC
TAX RATE
COST OF CAPITAL
ORIGNAL SCENARIO
REVENUE
1
2
3
4
5
12000000
12000000
12000000
12000000
12000000
SENSITIVITY ANALYSIS
SP
VC
114
66
REVENUE
1
2
3
4
5
11400000
11400000
11400000
11400000
11400000
19
Annual Inflow
Prob
Amt
0.15
0.3
0.15
0.15
0.25
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Rs. -299,738.68
Rs. -749,269.74
Rs. -899,039.71
Rs. -599,308.92
Rs. -449,446.99
Rs. -599,608.03
Rs. -1,498,904.61
Rs. -1,798,559.57
Rs. -1,198,963.38
Rs. -899,170.48
Rs. -299,836.68
Rs. -749,543.59
4,000
3,000
2,500
1,000
3,500
Rs. 10,714.29
Rs. 9,566.33
Rs. 8,541.36
Rs. 7,626.22
Rs. 6,809.12
Rs. 6,079.57
Rs. 49,336.89
CUMMULATIVE INCOME
Rs. 12,000.00
Rs. 24,000.00
Rs. 36,000.00
Rs. 48,000.00
Rs. 60,000.00 PAYBACK PERIOD
Rs. 72,000.00
Rs. -2,788.11
ALTERNATIVE METHOD
Rs. 210.76
Rs. -52.28
Rs. 216.42
Rs. 374.90
Rs. 174.90
Rs. 174.90
electric forklift
22000
6290
6290
6290
6290
6290
6290
3057.036618
Rs. 20,557.04
Rs. 3,057.04
T
outflow
1
2
3
25000
-25000
7400
7400
7400
4
5
Rs. 10,814.33 inflow
7400
7400
14.67%
Rs. 1,675.34
1.067
sitive NPV and IRR is greater cost of capital. But when we look at both them, there is a problem. Both of them together have positve NPV
d npv tend to differ. We normally look at NPV as a better criteria. Our objective is to maximise the value of wealth of the shareholder. HE
ALWAYS CHOOSE TO GO BY NPV AND CHOOSE THE PROJECT T
Since, it is a case of outflows only, take the lower of the present value. Hence, orignal option of Rs 2000 is better
Rs. 89,910.08
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
0
0
0
0
0
0
0
0
0
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
2600
B
10000000
Rs. 10,714,285.71
1
2
3
4
5
6
7
8
9
10
11
12
1750000
1750000
1750000
1750000
1750000
1750000
1750000
1750000
1750000
1750000
1750000
1750000
13
14
15
16
17
18
19
20
1750000
1750000
1750000
1750000
1750000
1750000
1750000
1750000
Depreciation
12500.00
9375.00
7031.25
50000.00
37500.00
28125.00
5273.44
3955.08
Retained Earnings post tax
Depreciation
21093.75
15820.31
12500.00
9375.00
7031.25
5273.44
3955.08
10875.00
10231.05
10760.79
10596.00
21007.57
7.64%
-50000
Depreciation
Revenue
566667
566667
566667
566667
566667
566667
EBIT
100000
DEFLATION
378000
443000
504000
442000
367000
333200
353575
376818.75
324214.0625
414292.1875
308518.5185
303133.5734
299130.8728
238307.0146
281960.3015
0.06
0.08
0.02
0.04
0.035
23.50%
Present Value
4307.64411
inflow - outflow - at present valuereturns
at 14%
-7846.177945
24173.55372
29421.4876
57520.66116
111115.7025
63636.36364
123636.3636
50000
80578.5124
294214.876
100000
24173.55372
29421.4876
60000
113595.0413
done the project in 2nd year after node B is completed. Node C gives a value less
than Abandonment value of rs 50000, thus it should be stopped
Old Machinery
Depreciation
New Machinery
Value
250000
187500
140625
105469
79102
59326
44495
33371
1
2
3
4
5
150000
150000
150000
150000
150000
1500000
1125000
843750
632813
474609
355957
Main Saved
94336
70752
53064
39798
29848
50000
50000
50000
NPV
Salvage - 5 yr
Dep
200000
Capital Gain/ Loss
Book Value
Salvage
Capital Loss
Tax Sheild
250000
187500
140625
105469
79102
Depreciation
Variable
250000
187500
140625
105469
79102
Tax Sheild
225000
225000
225000
225000
225000
201250
214375
232969
255664
494492
PV
609,375.00
609,375.00
609,375.00
609,375.00
609,375.00
Rs. 529,891.30
Rs. 460,775.05
Rs. 400,673.95
Rs. 348,412.13
Rs. 302,967.07
Rs. 2,042,719.51
Book Value
Salvage
Capital gain
Tax Shield
Depreciation
100000
100000
100000
100000
100000
Depreciation
Tax Shield
100000
100000
100000
165000
165000
165000
100000
100000
165000
210000
Rs. 689,423.40
NPV
Rs. 189,423.40
480000
Incremental Cash Flow
New Machine
-480000
40000
40000
40000
40000
40000
40000
40000
40000
40000
40000
40000
40000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
NPV
Machine B
15000000
Revenue
91500
91500
91500
91500
91500
91500
91500
91500
91500
91500
91500
91500
Rs. 726,755.80
Rs. 246,755.80
3500000
3500000
3500000
3500000
3500000
3500000
3500000
3500000
Rs. 18,672,241.69
Rs. 3,672,241.69
1000000
1000000
1000000
1000000
1000000
Depreciation
Total Revenue
1000000
1000000
1000000
1000000
1000000
Deflation
1650000
1650000
1650000
1650000
2650000
Machinery B
1
2
3
4
5
6
7
8
-15000000
3500000
3500000
3500000
3500000
3500000
3500000
3500000
3500000
Rs. 18,672,241.69
Rs. 3,672,241.69
-25
20
1556604
1468494
1385372
1306955
1980234
NPV
2
3
4
10
8
6
36%
Rs. 36.55
We would on the basis of NPV choose the first option even though the IRR of first option is less than that
of the other option
10000000
7500000
5625000
4218750
3164063
2373047
1
2
3
4
5
FIXED COST
VARIABLE COST
1500000
1500000
1500000
1500000
1500000
6000000
6000000
6000000
6000000
6000000
1
2
3
4
5
11000000
8250000
6187500
4640625
3480469
2610352
FIXED COST
VARIABLE COST
1500000
1500000
1500000
1500000
1500000
6600000
6600000
6600000
6600000
6600000
2500000
1875000
1406250
1054688
791016
DEPRECIATION
2500000
1875000
1406250
1054688
791016
PRESENT VALUE
NPV
2750000
2062500
1546875
1160156
870117
DEPRECIATION
2750000
2062500
1546875
1160156
870117
PRESENT VALUE
NPV
Project Life
Prob
INITIAL OUTLAY
RATE
Years
0.1
0.25
0.3
0.2
0.15
6
7
8
9
10
3860.752065
Rs. 25,860.75
Rs. 3,860.75
Rs. 26,675.34
n of Rs 2000 is better
########
Rs. 13,071,526.34
Present Value of
Inflows / retained
earnings
NPV
PI
########
########
Rs. 0.93
Payback Period
Rs. 4,735,455.22
Rs. -3,764,544.78
PRESENT VALUE
280471.3805
250523.6144
224741.4521
162766.8975
175075.1634
1093578.508
Year 1
Prob
0.3
CF
25,000
0.1
200,000
0.6
60,000
Node
Year 2
Con Prob
CF
0.1
25,000
0.9
75000
0.2 200,000
0.8
120000
0.5
60,000
0.5
40,000
New Machinery
Depreciation
375000
281250
210938
158203
118652
900000
194492
233252
248064
234798
934433
Increment
al Cash
Tax Sheild on IC
269531
202148
151611
113708
85281
94336
70752
53064
39798
29848
Rs. 1,296,535.24
Rs. 396,535.24
237305
200000
37305
13056.64063
Cost
123750
210625
292031
369336
230508
Rs. 784,658.89
Rs. 1,784,658.89
Present Value
Rs. 5,791,813.35
Rs. -208,186.65
CASH INFLOW
3700000
3450000
3262500
3121875
9389453
Rs. 15,687,909.23
Rs. 1,687,909.23
CASH INFLOW
3080000
2805000
2598750
2444063
8938398
Rs. 19,866,210.94
Rs. 5,866,210.94
248%
20000000
10%
1 a)
cost of asset
260000
tax rate
30%
int rate
13%
time
5 yrs
salvage value
0
pv of tax sheilds on depreciation + pv of post tax sheild rentals = 260000
pmt
post tax lease rental
b)
Rs. 73,921.78
Rs. 83,316.83
cost of asset
128000
tax rate
30%
int rate
6%
time
9
salvage value
20000
pv of tax sheilds on depreciation + pv of post tax sheild rentals = 128000
pmt
post tax lease rental
Rs. 17,078.40
Rs. 19,254.86
by using pmt - we get a value which is per
to get post tax lease rental = [17078
2 a)
purchase price
int rate
time
residual value
dep amount
46000
11%
6 yrs
3000
7167
annual value
b)
IRR (rate)
c)
cost of asset
asset value
life
salvage
depreciation
post tax returns
tax rate
Rs. 9,454.23
8.26%
Rs. 95,800.98
50000
3 yrs
5000
15000
9%
40%
pmt
post tax lease rental
Rs. 18,227.46
Rs. 20,379.11
Dep
-75600
4400
4400
4400
2440
4400
4400
4400
2440
4400
4400
4400
2440
4400
4400
4400
2440
4400
4400
4400
18040
1.89%
7.55%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
quaterly rate
annual rate
12000
5
BUY
COST
LIFE (YRS)
SCRAP VALUE
Depreciation rate (WDV)
100000
8
20000
18.25%
DEPRECIATION SCHEDULE
YEARS
1
2
3
4
5
Asset value
DEPRECIATION
100000.00
81750.00
66830.63
54634.04
44663.32
18250.00
14919.38
12196.59
9970.71
8151.06
6
7
8
YEARS
1
2
3
4
5
6
7
8
36512.27
29848.78
24401.38
PRINCIPAL
INTEREST
Rs. 8,744
Rs. 9,619
Rs. 10,581
Rs. 11,639
Rs. 12,803
Rs. 14,083
Rs. 15,491
Rs. 17,040
6663.49
5447.40
4453.25
Rs. 10,000
Rs. 9,126
Rs. 8,164
Rs. 7,106
Rs. 5,942
Rs. 4,661
Rs. 3,253
Rs. 1,704
2800
2800
2800
2800
2800
2800
2800
2800
DEPRECIATION SCHEDULE
YEARS
1
2
3
4
5
PRINCIPAL
DEPRECIATION
80000.00
66000.00
52000.00
38000.00
24000.00
14000.00
14000.00
14000.00
14000.00
14000.00
0
1
2
3
PRINCIPAL
INTEREST
Rs. 19,185
Rs. 13,104
Rs. 14,414
Rs. 15,856
Rs. 0
Rs. 6,081
Rs. 4,771
Rs. 3,330
YEARS
4
5
Rs. 17,441
Rs. 1,744
5700
5700
5700
5700
5700
DEPRECIATION SCHEDULE
YEARS
1
2
3
4
5
PRINCIPAL
DEPRECIATION
1000000.00
180000.00
820000.00
180000.00
640000.00
180000.00
460000.00
180000.00
280000.00
180000.00
260000
104000
0
1
2
3
4
5
-200000
50000
50000
50000
50000
50000
7.93%
7.93%
part 2 remaining
9 a)
b)
c)
Rs. 66,875.94
Depreciation per year
Depreciation on tax sheild
Maintenance post tax
40000
14000
13000
FOR A PROBLEM LIKE THIS, FIST CALCULATE THE PMT FUNCTION. THAT GIVES YOU THE OPTIMUM
VALUE OF LEASE RENTALS AS "X" WE SOLVE THE EQUATION TO
D)
7 a)
Rs. 61,500.75
depreciation
cost of capital
tax rate
4500
9%
40%
pmt
equilbrium elase rental
b)
depreciation
Rs. 7,011.90
8687
Loan
1
2
3
4
5
6
7
8
9
10
45000 pmt
PRINCIPAL
INTEREST
Rs. 2,216.34
Rs. 2,548.79
Rs. 2,931.11
Rs. 3,370.78
Rs. 3,876.40
Rs. 4,457.86
Rs. 5,126.54
Rs. 5,895.52
Rs. 6,779.84
Rs. 7,796.82
Rs. 6,750.00
Rs. 6,417.55
Rs. 6,035.23
Rs. 5,595.56
Rs. 5,089.95
Rs. 4,508.49
Rs. 3,839.81
Rs. 3,070.83
Rs. 2,186.50
Rs. 1,169.52
1
2
3
4
5
6
7
8
9
10
LEASE
TAX SHIELD
Rs. 8,686.50
Rs. 8,686.50
Rs. 8,686.50
Rs. 8,686.50
Rs. 8,686.50
Rs. 8,686.50
Rs. 8,686.50
Rs. 8,686.50
Rs. 8,686.50
Rs. 8,686.50
Rs. 3,474.60
Rs. 3,474.60
Rs. 3,474.60
Rs. 3,474.60
Rs. 3,474.60
Rs. 3,474.60
Rs. 3,474.60
Rs. 3,474.60
Rs. 3,474.60
Rs. 3,474.60
YEARS
LEASING
YEARS
DEPRECIATION
300000
Loan
2000000 pmt
PRINCIPAL
INTEREST
YEARS
0
1
2
3
4
5
6
Rs. 234,314.99
Rs. 267,119.09
Rs. 304,515.76
Rs. 347,147.97
Rs. 395,748.69
Rs. 451,153.50
Rs. 280,000.00
Rs. 247,195.90
Rs. 209,799.23
Rs. 167,167.02
Rs. 118,566.31
Rs. 63,161.49
LEASING
YEARS
0
1
2
3
4
5
6
LEASE
TAX SHIELD
Rs. 450,000.00
Rs. 450,000.00
Rs. 450,000.00
Rs. 450,000.00
Rs. 450,000.00
Rs. 450,000.00
Rs. 157,500.00
Rs. 157,500.00
Rs. 157,500.00
Rs. 157,500.00
Rs. 157,500.00
Rs. 157,500.00
depreciation amount
by using pmt - we get a value which is per year payment (which is 30% of 52000 and 70% of x)
to get post tax lease rental = [73921 - (30% of 52000)]/.70
depreciation amount
PV of tax sheid on Dep
Salvage Value PV
Pv of 70% for 8 yrs
Pv of 70% for 8 yrs + 1 yr
Pv of 30% for 9 yrs
Diff
12000
Rs. 24,486.09
11837.96927
4.35
5.35
0.177569539
5.17
we get a value which is per year payment (which is 30% of 52000 and 70% of x)
t tax lease rental = [17078 - (30% of (128000-20000)]/.70
OPTION 1
AMORTISATION SCHEDULE
TOTAL AMOUNT
PRINCIPAL
Rs. 18,744.40
Rs. 18,744.40
Rs. 18,744.40
Rs. 18,744.40
Rs. 18,744.40
Rs. 8,744.40
Rs. 9,618.84
Rs. 10,580.73
Rs. 11,638.80
Rs. 12,802.68
Rs. 18,744.40
Rs. 18,744.40
Rs. 18,744.40
DEPRECIATION
TAX SHIELD
Rs. 18,250
Rs. 14,919
Rs. 12,197
Rs. 9,971
Rs. 8,151
Rs. 6,663
Rs. 5,447
Rs. 4,453
Rs. 5,650
Rs. 4,809
Rs. 4,072
Rs. 3,415
Rs. 2,819
Rs. 2,265
Rs. 1,740
Rs. 1,231
Rs. 14,082.95
Rs. 15,491.24
Rs. 17,040.37
OPTION 2
CASH OUT FLOW
11200
11200
11200
11200
11200
11200
11200
11200
PRESENT VALUE
Rs. 10,370.37
Rs. 9,602.19
Rs. 8,890.92
Rs. 8,232.33
Rs. 7,622.53
Rs. 7,057.90
Rs. 6,535.09
Rs. 6,051.01
Rs. 64,362.36 WE SHOULD CHOOSE OPTION 2 AS IT IS THE LOWER OF THE TWO
VALUES
OPTION 1
AMORTISATION SCHEDULE
TOTAL AMOUNT
PRINCIPAL
Rs. 19,185.27
Rs. 19,185.27
Rs. 19,185.27
Rs. 19,185.27
Rs. 19,185.27
DEPRECIATION
TAX SHIELD
Rs. 14,000
Rs. 14,000
Rs. 14,000
Rs. 19,185.27
Rs. 13,103.80
Rs. 14,414.18
Rs. 15,855.60
Rs. 17,441.16
Rs. 14,000
Rs. 14,000
Rs. 5,199
Rs. 4,723
Rs. 13,986
Rs. -14,723
Rs. 60,148
OPTION 2
CASH OUT FLOW
19000
13300
13300
13300
13300
-5700
66500
PRESENT VALUE
Rs. 19,000.00
Rs. 12,429.91
Rs. 11,616.74
Rs. 10,856.76
Rs. 10,146.51
Rs. -4,064.02
Rs. 59,985.89
OPTION 1
AMORTISATION SCHEDULE
TOTAL AMOUNT
PRINCIPAL
Rs. 221,927.79
Rs. 125,927.79
Rs. 221,927.79
Rs. 141,039.12
Rs. 221,927.79
Rs. 157,963.81
Rs. 221,927.79
Rs. 176,919.47
Rs. 221,927.79
Rs. 198,149.81
156000
100000
Rs. 48,100.02
Rs. 574,127.95
5 year @ 20%}
THAT GIVES YOU THE OPTIMUM VALUE FOR THE GIVEN DETAILS. THEN KEEPING THE
X" WE SOLVE THE EQUATION TO GET THE VALUE.
32000
pv company
Rs. 8,966.34
DEPRECIATION
TAX SHIELD
NET CASH OUTFLOW
4500
Rs. 4,500.00
Rs. 4,466.34
4500
Rs. 4,367.02
Rs. 4,599.32
4500
Rs. 4,214.09
Rs. 4,752.25
4500
Rs. 4,038.22
Rs. 4,928.12
4500
Rs. 3,835.98
Rs. 5,130.36
4500
Rs. 3,603.39
Rs. 5,362.95
4500
Rs. 3,335.92
Rs. 5,630.42
4500
Rs. 3,028.33
Rs. 5,938.01
4500
Rs. 2,674.60
Rs. 6,291.74
4500
Rs. 2,267.81
Rs. 6,698.53
9.00%
OST OF CAPITAL = POST TAX COST OF BORROWING FOR HVP'S THAT IS WHY THE VALUES ARE SAME
OST OF BORRIWING IS LESS THAN COST OF CAPITAL OF LESSOR , LESSEE WOULD CHOOSE TO GO FOR LEASING OPTION
Rs. 514,314.99
DEPRECIATION
MAINTENANCE
TAX SHIELD
50000
300000
50000
300000
50000
300000
50000
300000
50000
300000
50000
300000
Rs. 220,500.00
Rs. 209,018.57
Rs. 195,929.73
Rs. 181,008.46
Rs. 163,998.21
Rs. 144,606.52
52000
SATION SCHEDULE
Rs. 18,744.40
INTEREST
Rs. 10,000.00
Rs. 9,125.56
Rs. 8,163.68
Rs. 7,105.60
Rs. 5,941.72
Rs. 4,661.46
Rs. 3,253.16
Rs. 1,704.04
PRESENT VALUE
Rs. 12,124.45
Rs. 11,947.37
Rs. 11,647.38
Rs. 11,267.37
Rs. 10,838.86
Rs. 10,384.83
Rs. 9,921.84
Rs. -1,343.68
Rs. 76,788.43
SATION SCHEDULE
Rs. 19,185.27
INTEREST
Rs. 0.00
Rs. 6,081.47
Rs. 4,771.09
Rs. 3,329.68
Rs. 1,744.12
PRESENT VALUE
7%
Rs. 19,185
Rs. 14,004.93
Rs. 11,495.18
Rs. 11,064.06
Rs. 10,670.13
Rs. -10,497.46 WE SHOULD CHOOSE OPTION 1 AS IT IS
THE LOWER OF THE TWO VALUES
Rs. 55,922.10
SATION SCHEDULE
Rs. 221,927.79
INTEREST
Rs. 96,000.00
Rs. 80,888.67
Rs. 63,963.97
Rs. 45,008.31
Rs. 23,777.98
IMPORTANT FORMULA
101347.601
97385.77312
PRESENT VALUE
9.00%
Rs. 4,097.56
Rs. 3,871.16
Rs. 3,669.61
Rs. 3,491.20
Rs. 3,334.39
Rs. 3,197.75
Rs. 3,080.03
Rs. 2,980.09
Rs. 2,896.89
Rs. 2,829.53
Rs. 33,448.22
PRESENT VALUE
50000
Rs. 343,814.99
Rs. 355,296.43
Rs. 368,385.26
Rs. 383,306.53
Rs. 400,316.78
Rs. 169,708.47
50000
Rs. 315,137.48
Rs. 298,497.94
Rs. 283,679.53
Rs. 270,549.80
Rs. 258,988.24
Rs. 100,636.38
Rs. 1,577,489.37
9.10%
depr
cost of asset
int rate
salvage
tax
pmt
time
ASSET
i
t
salvage
depr
pmt
st
17,078.40
13,478.40
19,254.86
46,000.00
0.11
6.00
3,000.00
7,166.67
9,454.23
210,000.00
0.08
5.00
25,000.00
37,000.00
45,000.00
asset
p
salvage
t
i
asset
t
salva
depr
tax
12,000.00
128,000.00
0.06
20,000.00
0.30
26,838.81
23,238.81
33,198.30
9.00
100,000.00
8.00
20,000.00
18.25%
20%
total amount
after tax
50,000.00
3.00
5,000.00
40%
9%
$18,227.46
20,379.11
asset
pmt
t
tax
salvage
depr
80,000.00
4,400.00
5.00
35%
20,000.00
12,000.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
$95,800.98
8%
7.00
10,000.00
16,000.00
15,000.00
100,000.00
81,750.00
66,830.63
54,634.04
44,663.32
36,512.27
29,848.78
24,401.38
18.25%
18,250.00
14,919.38
12,196.59
9,970.71
8,151.06
6,663.49
5,447.40
4,453.25
amount
principal
$18,440.40 #NAME?
$18,440.40
$18,440.40
$18,440.40
$18,440.40
$18,440.40
$18,440.40
$18,440.40
interest
Given
debt
equity
70
30
debt
equity
Income remaining
Dividend Payout
2
Capital
debt
equity
10000000
6000000
4000000
dividends
net income
growth rate
3600000
10800000
10%
1)
2)
DPR of 2001
3)
Residual Dividend
Debt to fund investments
Equity
Dividend
4)
DPS
Debt
Equity
No of Equity Shares
Net Income
Dividend paid
1)
3
40
60
1000000
8000000
3000000
Residual Dividend Policy
Debt
Equity
Dividend
DPS
one before Last)
Debt
Equity
Dividend
Equity Remaining to fund the project
Equity to be brought in
3)
DPS
Dividend
Equity Remaining
Debt (for the remaining amount required)
Last)
Debt
Equity
Dividend
capital budget
Debt
equity
5000000
2000000
3000000
Income
DPR
Equity Remaining
Equity to be brought in
2000000
500000
1500000
1500000
Income
Debt
Equity
1000000
1
1
CAPEX
debt
equity
2000000
1000000
1000000
Dividend
7
EPS
Ke
Retention Ratio
ROE
DPS
0
10
10%
50%
12%
5
G
P
6.00%
125
2000000
1100000
5/9
debt
asset
60
40
1250000
DPR
Income
Dividend
Amount Remaining
1/3
45%
5000000
2250000
2750000
Earnings Capital
2002 14400000
8400000
3.96
4800000
3.36
5.04
9.36
3.96
5.40
better than giving the whole amount as dividend, then the shareholders would
expect the company to keep giving the same or yet better amount even in the
coming years
constant
Capital Required
4000000
10000000
6000000
2000000
2
4000000
6000000
3000000
5000000
1000000
3
3000000
5000000 Debt
5000000 Equity
3333333
5000000
3000000
50
50
40%
60%
8333333
40%
60%
25%
No dividend to be paid
10%
8%
30%
12%
10%
8%
70%
12%
5.00%
100
4.00%
83
3.60%
109
3.00%
100
2.40%
92
8.40%
188
is more than Ke - high growth firm - high market price - as is lowers the payout ration or increases the retention ration. High growth firm
ds to maximise shareholders funds. (market expected rate - 10%, and if we ratin the funds, we give them a return of 12% )
paypout high dividends, roe - 8%, market return in 10%, shareholders will like if we payout more and have low retention ratio
10%
8%
7.00%
100
5.60%
68