Unlevered
Year 1 Year 2 Year 3 Year 4 Year 5 5
Revenues 200 210 220 230 240
Costs 100 105 110 115 120
EBIT 100 105 110 115 120
Intt Unlevered EBIT = PBT
PBT 100 105 110 115 120
NOL 120 15 -95
Taxable Profit 0 0 95 115 120
Tax 0 0 38 46 48
PAT 100 105 72 69 72
Change in WC 3 3 4 4 5
Intt Never Subrtracted so need to add back
Net Debt Unlevered No Debt Movement
Unlevered Cash flow 97 102 68 65 67
PV of Cash flows 85.84 79.88 47.13 39.87 36.36
PV of TV ₹ 374.56
APV 663.64
year 1 2 3
B Debt 75 50 25
PP 25 25 25
E Debt 50 25 0
year interest tax sheild PV *Pv at Kd
1 6 2.4 ₹ 2.22
2 4 1.6 ₹ 1.37
3 2 0.8 ₹ 0.64
4 0 0 ₹ 0.00
5 0 0 ₹ 0.00
₹ 4.23
Total APV ₹ 667.87
Academic Evidence Practical Rule of Thumb
Research findings typically show: APV generally 2-8% higher than WACC in le
APV valuations 2-5% higher on average 1. More favorable tax shield treatment
Bigger difference in high-leverage situations 2. Less conservative debt capacity assump
Closer values in stable capital structures 3. Cleaner separation of operating vs finan
Description
NOLs available to offset future income
Beginning debt (8%)
Debt installment amounts
Number of debt installments
Debt repayment timing
Tax rate
Unlevered beta
10-year treasury bond yield
Market risk premium
Net cash flow growth rate after Year 5 (perpetuity)
Add to follow-up
CAPM
gher than WACC in leveraged scenarios, primarily due to:
hield treatment
ebt capacity assumptions
of operating vs financing value
Value
$220 million
$75 million
$25 million each
3
Beginning end of Year 1
40%
0.8
7%
7.50%
3%
13.00%
Year Rev Costs EBIT NOL Tax Inc Tax
Year 1 100 230 -130 -230 0 0
Year 2 140 240 -100 -330 0 0
Year 3 210 260 -50 -380 0 0
Year 4 250 275 -25 -405 0 0
Year 5 290 290 0 -405 0 0
Year 6 380 310 70 -335 0 0
Year 7 500 350 150 -185 0 0
Year 8 650 400 250 65 65 26
Year 9 900 470 430 430 430 172
PAT NWC 'NWC Dep Capex FCFF Disc R
-130 10 0 -130 ₹ 0.87 ₹ -113.04
-100 14 4 -104 ₹ 0.76 ₹ -78.64
-50 21 7 -57 ₹ 0.66 ₹ -37.48
-25 25 4 -29 ₹ 0.57 ₹ -16.58
0 29 4 -4 ₹ 0.50 ₹ -1.99
70 38 9 61 ₹ 0.43 ₹ 26.37
150 50 12 138 ₹ 0.38 ₹ 51.88
39 65 15 24 ₹ 0.33 ₹ 7.85
258 90 25 233 ₹ 0.28 ₹ 634.73
1999.917
₹ 473.10
Here's the information from the text after the image, structured into a Markdown
Parameter
NOLs available
Tax rate
Beta (average unlevered, comparable firms)
Long term debt
Treasury yield (10-year bonds)
Capital expenditure (Capex) requirement
Market risk premium
Net working capital requirement
EBIT growth rate (after Year 9, perpetuity)
Sensitivity analysis required for
after the image, structured into a Markdown table for clarity:
Value/Description
$100 million
40%
1.2
None
6%
Equal to depreciation
7.50%
10% of sales
3% per year
WACC, terminal growth rate
0.15
a Y7 20
TV 300
Shares Outstanding 500000
IRR 50%
PV of TV 17.55829904
Funding 5
% stake 28.48%
total shares' 699071.5456
New shares 199071.5456
price 25.11659808
Pre 12558299
Post 17558299
Funding 5000000