Description

Financial Modeling
December 2023 Examination
1. What are the phases of building an Unlevered DCF Model? Calculate the value of
Equity using the DCF method with the following information/assumptions:
Tax Rate 25%
Discount Rate 12%
Shares Outstanding 25000
Cash Flows for the next few years is as under:
(Rs. In ‘000s)
1 2 3 4 5
EBIT 120 115 135 145 120
Changes in NWC 20 25 12 18 23
Terminal value in 6th year is Rs. 500,000. Capex of Rs. 45,000 is estimated every year.
Cash Balance of Rs. 10,000 and Debt of Rs. 200,000 exists as on date. (10 Marks)
Ans 1.
Introduction
(DCF) Discounted cash float can be defined as a valuation method (V.M.) that determines the
price of an investment using its expected (FCF) destiny cash flows, including cash outflows
and inflows.
DCF evaluation tries to estimate the price of an investment today based on estimates of how
much cash can be earned inside Destiny.
It may assist those considering whether to acquire an organization or buy securities in making
their selections. Discounted cash glide (DCF) analysis can also help managers and business
owners choose capital budgeting or operating costs.
• Discounted cash flow analysis helps decide a funding’s value based on its (FCF)
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2. Mr. Mohan had a kitty of Rs. 45,00,000 for surplus investments. His aims for
investment were as under:
(a) 10% of the amount has to be maintained as liquid funds for emergencies.
(b) 40% of the amount in order to earn a steady income. He does not have too much of
an expertise in the markets and hence lacks investment acumen.
(c) Balance 50% he is open to take risks and wants to earn higher than the FD interest
rate currently offered by the banks/Government.
Advise Mr. Mohan on an investment methodology to take care of the above objectives
and to build its portfolio. (10 Marks)
Ans 2.
Introduction
Investment decision refers to financial resource allocation. Buyers pick the most suitable
assets or investment possibilities primarily based on chance profiles, investment objectives,
and return expectations.
Firms have restrained financial resources; therefore, the top-stage management undertakes
capital budgeting and fund allocation into long-term property. Business operations managers
choose quick-term investments to make certain liquidity and operating capital. Funding
selections are also stimulated by the frequency of returns, related dangers, adulthood periods,
3a. M/s Esha Enterprises was trading at a share price of Rs. 50 at the beginning of the
year. During the year the company declared a Dividend of Rs. 5. By the end of the year
the share price was at Rs. 55 per share. Beta of the Company was pegged at 0.6.
Government securities are earning a return of 4% currently. Calculate the Cost of
Equity of M/s Esha Enterprises using CAPM Method. (5 Marks)
Ans 3a.
Introduction
The cost of equity is the minimum threshold for the required price of go-back for equity
investors; that’s a function of the company’s risk profile.
Suppose an investor decides to contribute capital to the investment or project. In that case, the
cost of equity is the predicted go-back, which needs to compensate the investor correctly for
b. If you deposit an amount of Rs. 25000 in a bank at an interest rate of 8% for 5 years,
compounded annually, how much will it grow after 5 years? What if the rate is
10%? And compounded quarterly at 8% p.a. (5 Marks)
Ans 3b.
Introduction
Compound interest may be imposed on a deposit amount or a loan. It is usually used concept
in our everyday existence. The compound interest for an amount depends on both interest and
principal gained over periods. That is the primary difference between compound and simple
interest.
Compound interest is the interest calculated on the essentials and accumulated over the