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Session 2

1. Current Assets & Liabilities:


The assets and liabilities created in a single operating cycle are called current assets
and liabilities
If operating cycle is seasonal or more than 12 months,
If the short term investments are used for operations then only they are considered as
current asset else they are noncurrent asset

2. Fixed Assets:
Fixed assets can be operating or non-operating
Depreciation is calculated on depreciable value and not on the cost of the asset
Based on the useful life decided by management, the depreciation value is decided for
every year. E.g. If depreciable value of an asset is 85 and useful life decided by
management is 2 years then depreciation per year is 85/2. But the real value of any
asset is: Purchase cost Scrapped value + Transportation charges

3. Quality Earnings:
If one company takes useful life of asset as 5 years and other company takes useful
life of 3 years, then the values reported by both companies are just reported values
and not the real values.
Dirty Profit:
4. Capital Work-in-Progress:
If a company is constructing 2 buildings out of which only one building construction has
been completed and one is still under construction, so till the completion of under
construction building, no depreciation will be applied on this building and it will be
entered as Capital-work-in progress and will not be written in building account.
5. Intangible Assets under development:
A company has to get the patent registered. Once the patent is registered then only
company can start amortizing it.
A company cannot have goodwill as forever or fixed asset in the balance sheet and so
need to be amortized over certain number of years(In India, goodwill has to be
amortized over 5 years)
Once a company apply for a patent, it cannot include in a patent account, as it is not
yet approved (i.e. registration in progress), instead it should be entered as an intangible
asset under development. Once the patent is registered, it can be transferred to patent
account
All intangible assets have to be write off.
6. Deferred Tax:
A company shows the profit based on its financial reports, but it has to pay the tax
based on Income Tax Act and not the tax based on its reported profit.
This happens when the depreciation calculation method used by the company is
different from the depreciation calculation method used by Government Income Tax
Act
So if there is a difference between the tax calculated by company is different than the
tax based on Income tax act, the difference is called as deferred tax
If the tax calculated by company is lower than the tax based on Income tax act, it is
entered as a deferred tax liability, else it is entered as deferred tax asset.
So the company is just postponing or differing its tax amount at this time and so
deferred tax is a temporary asset or liability.
Session 3

7. Shareholders equity:
Shareholders equity consists of share capital and reserves and surplus.
Share capital is nothing but the book value of common stock
Reserves and Surplus has 2 parts, unused reserves and undistributed retained
earnings
Some part of PAT(Profit after tax) is kept aside by a company for future is called reserve
Retained earnings can be distributed as dividends to common stockholders or can be
reinvested in business for 1 year. So it is an internal source of finance for a company.
If company doesnt distributes the retained earnings as dividends, it is good for long
term investors as they can get more returns on their investment in future, but short term
investors will not get any advantage.
So every company has 2 sources of internal finance, one is undistributed retained
earnings and other one is depreciation. As depreciation is a noncash expense, it will
make additional cash available for business. Business can invest retained earnings
and depreciation as internal source of finance or can invest outside.

8. Market Value Added:


If market price of share of a company is less than its book value, it means company is
not able to add any market value.
Market capitalization = (Number of shares outstanding)*(Market price per share)
Book value of common equity = (Number of shares outstanding)*(Book price per share)
Market Value Added = (Market Capitalization)-(Book value of common equity)
Market value added depends on the accounting communication or market dynamics or
window dressing skills & strategy of a company.
Market dynamics are signals created by a company to create positive psychology in
customers, so as to create demand in the market. Investors want to know how a
business is doing financially and so it is important to communicate the information
positively to the investors so as to increase the demand.

9. Provisions
Provisions are the mandatory obligations, which you have not paid yet, but which you
cannot postpone and thus need to be mentioned in your balance sheet as provisions.
Unlike reserves which are created after PAT, provisions are created before PAT.
Reserves are not mandatory obligations.

Session 4

10. Net Cash flows from Operating Activities


There are two methods to calculate cash flows from operating activities-Direct method
and indirect method.
In case of direct method, we subtract all cash operating expenses(E.g. cash paid to
suppliers and employees) from cash operating revenues(E.g. cash received from
customers) and subtract income tax paid this year to get the net cash flow from
operating activities
In case of indirect method, we first take PBT (i.e. Profit before tax) and
o We add back noncash expenses and subtract noncash incomes, we add back
the non-operating expenses (E.g. Depreciation and amortization, provisions for
doubtful debts, foreign exchange loss, interest expense, and loss on sale of
fixed asset or investments) and subtract non-operating incomes(E.g. foreign
exchange gain, gain on sale of assets or investments, dividend income)
o We do adjustments for working capital changes-If current assets (E.g. account
receivables, inventories, prepaid expenses) have been increased then we
consider it as a cash outflow and if current assets have been decreased then
we consider it as a cash inflow. Similarly If current liabilities (account payables,
bills payables) have been increased then we consider it as a cash inflow and
if current liabilities have been decreased then we consider it as a cash outflow.
o After doing adjustments above for noncash income/expenses and working
capital changes, we subtract income tax paid this year to get net cash flow
from operating activities

Example 1:

Opening Stock Non-Cash Operating 1000


Purchases Cash Expense (+)40000
41000
Closing Stock Non-Cash Operating (-)2000
COGs 39000
Other expenses Cash Operating Expense (-)11000
Depreciation Non-Cash Operating Expense (-)20000
Profit 30000

Direct Method Indirect Method


Cash Sales 100000 Profit Before Tax 30000
Less: Purchases (-)40000 Add: Depreciation 20000
Less: Other Expense (-)11000 Add: Opening Stock 1000
Less: Closing Stock 2000
Cash flow from Operations 49000 49000

Example 2: If 20% sales are credit sales out of 100000 total sales
Direct Method Indirect Method
Cash Sales 80000 Profit Before Tax 30000
Less: Purchases (-)40000 Add: Depreciation 20000
Less: Other Expense (-)11000 Add: Opening Stock 1000
Less: Closing Stock 2000
Less: Credit Sales 20000
Cash flow from Operations 29000 29000

Note: This can be also shown as increase in account receivables (assets) which means cash
outflow, in case of indirect method

Example 3:if 10% credit purchases out of 40000 total purchases


Direct Method Indirect Method
Cash Sales 80000 Profit Before Tax 30000
Less: Purchases (-)36000 Add: Depreciation 20000
Less: Other Expense (-)11000 Add: Opening Stock 1000
Less: Closing Stock 2000
Less: Credit Sales 20000
Add: Credit purchases 4000
Cash flow from Operations 33000 33000

Note: This can also be shown as increase in account payables (liability), which means cash
inflow in case of indirect method

Example 4:if 2000 outstanding other expenses out of total other expenses of 11000
Direct Method Indirect Method
Cash Sales 80000 Profit Before Tax 30000
Less: Purchases (-)36000 Add: Depreciation 20000
Less: Other Expense (-)9000 Add: Opening Stock 1000
Less: Closing Stock 2000
Less: Credit Sales 20000
Add: Credit purchases 4000
Add: Outstanding expense 2000
Cash flow from Operations 35000 35000

Example 5: if out of income of 10000, 2000 is an accrued expense(which is noncash


current asset)

Session 5-Case: Showdown at Cracker Barrel

11. We need to perform 4 types of analysis for any company:


Business Analysis
Accounting Analysis
Financial Analysis
Valuation Analysis
12. Hierarchy of profits:
Gross Profit= Sales-Cost of Goods Sold
Net profit = gross profit when there are no overheads other than cost of goods sold,
that is when the company is just purchasing goods and selling them with some margin.
Net profit = Gross Profit Overheads. Here overheads are aggregate of all indirect
expenses
Earnings before Interest, tax, depreciation and amortization(EBITDA)= Gross Profit-
Operating Expenses
Operating Income or EBIT = EBITDA Depreciation
Earnings before tax(EBT) = EBIT Interest Expense
Net Income or Profit after tax = EBT tax
A company will first try to recover depreciation as depreciation is an operating expense
and so will be continued till the operations are continued. To continue the company
operations, the company need to make money to retain its operating fixed assets.
If a company is making a profit equal to n times of its operating leverage, is better than
another company which is making a profit less than n times of its operating leverage
as it will not be able to sustain/continue its operations for long time.
Once the company is able to recover the depreciation on its fixed assets, it need to
make enough profit to pay the interest on its debt, which is a non-operating expense.
Selling & Admin Expense is an operating expense
If a company has in-house production of goods using raw materials, labour and other
direct operating expenses, instead of buying finished goods, then it has 2 costs, one is
Work-in-Progress and other is finished goods.

Session 8-Case: ABC Learning

Accounting Analysis:
o Growth in revenue and growth in profit is not in synchronization. So company
growth is not a sustainable growth. Fixed costs is 83%. If you increase the
number of customers through marketing, the fixed costs will be distributed in
these increased number of customers and so fixed cost per customer will
decrease.
o Company is showing high intangible assets in fixed assets so that It can raise
more debt
o Lease debt is off balance sheet item or hidden item. Lease payment was not
shown by company as long term debt in balance sheet.
o Due to high debt, interest expenses increase and so profitability reduces
o Company has written goodwill under Intangible assets. But company need to
write off this goodwill in x years ( x= 5 years for India). Goodwill cannot be
liquidated.
Financial Ratio Analysis:
o Return on Sales: company is adding short term debt to long term debt in
calculating Debt Equity ratio which is wrong.
o Return on Equity: ROE is 7.5 in 2007 and 4.7 in 2006 which is less than cost
of equity(11.37%), so shareholders are not getting expected return
o Fixed costs as % of sales is 83% and variable costs are 17%. So fixed cost is
huge cost for company as fixed cost remains same even if number of
customers change.
o Out of total assets, 70% are intangible assets, mainly licenses of stores,
which cannot be liquidated
o Company is using short term borrowings to run the business. Company
should have taken long term loan instead of short term borrowings.
o Lease payments not included in debt.

Cash Flow Analysis:


o There is a deficit of 1141.6(i.e. cash from operations is 366.3 and cash from
investment activities is 1817.1). So this deficit of 1141.6 has to be financed.
So the company should take long term loan instead of short term loan.
o If investment activities reduced to reduce this deficit, then sales will go down
while fixed costs will remain same and so again there is a problem, so
company cannot reduce the investing activities and has to take a loan and
increase the operating efficiency.

Valuation Analysis:
o Projected share price = 8.52 per share
o Equity = 1744.5
o Projected PE Ratio= (projected market price)/EPS=8.52/0.43=19.814
o Number of shares outstanding = 475 million
o Projected PE ratio= 1/(cost of equity growth rate)= 19.814
o As cost of equity = 0.1137, so Projected growth rate = 6.32%
o Price to Book Ratio = {1+ {[(Expected ROE)-(Cost of Equity)]/[(cost of equity)-
(projected growth rate)]}} => 2.12 = {1 +{ [(E(ROE)-0.1137]/(0.1137-0.0632)}}
=> E(ROE)=16.42%
o But Present ROE is 7.5%.
o As Expected ROE is greater than actual ROE, so the share price is
overvalued.

Session 11-Economic Value Added


IRR gets converted to ROI after a year. Even if ROI is increasing, we cannot say that
company is performing well or creating value for the firm. If opportunity cost is 5% then
the ROI of company should be greater than 5%. ROI should be greater than cost of funds
for improvement in value of firm. Profit, Growth and Value, all three should be improved.
Economic Value added = NOPAT Cost of Capital Employed
Where NOPAT = EBIT(1-T)
Where Cost of Capital Employed = (Average Capital Employed)*WACC
For HUL, EVA is increasing from 2007, so company is creating value. In 2015-16, HUL
accepted IFRS standards, because of this, the EVA looks reduced in value, but actually
EVA is increasing from 2007.
To improve EVA, Cost of capital employed should be reduced, which can be done by
improving performance or efficiency of fixed assets or net working capital(by improving
operations)
Session 12-Case: Nuware Inc.

Nuware R.P.Stuart
2013 2012 2013 2012
I. Account Receivables
Net Account Receivables 295888 363424 269115 217123
Provisions for bad debts(PBD) 9438 16140 12650 10327
Gross Account Receivables 305326 379564 281765 227450
PBD as a % of Gross Account Receivables 3.09% 4.25% 4.49% 4.54%
if Nuware also use the RP's policy 4269.785 1093.491
3176.294
III.Depreciation (difference in useful life assumption)
Net Fixed Assets(PP&E) 374493 370262
Accumulated Depreciation(exhibit4-pp&e) 304500 268500
Gross fixed assets 678993 638762 430256 356096
Accumulated Depreciation(exhibit4-pp&e) 304500 268500 135692 11092
Depreciation expenses(annual)(exhibit4&exhibit7) 35698 31572 26900 24000
Approximate useful life(in years) 19.02048 20.23191 15.99465 14.83733
Approximate Present Age of the fixed Assets 8.52989 8.504371 5.044312 0.462167
Nuware depreciation expense (as per RP's useful life) 42451.27
Additional depreciation expense for Nuware 6753.266
IV. Inventory(Nuware using LIFO whereas RP is using FIFO)
Inventory(from balance sheet)(exhibit3&) 247502 230911 131344 109829
COGs(from Income Statement)(exhibit2&5) 1001892 1009893 352682 316500
LIFO Reserves(exhibit-4-page7) 29500 35100
Change in LIFO reserves from 2012 to 2013 5600

Summary of Adjustments
Income Before Tax Effect on After Tax Effect
Balance Sheet Statement Profit on Profit
Account receivables will Bad Debt
be reduced by expenses will go
Account Receivables 3176.294 up by 3176.294 -3176.294 -2001.997323
this will increase
the profit by
6700, so we need
to subtract this
gain on sale of
Gain on sale of investments investments -6700 -4222.966155
depreciation
expense will be
fixed assets will be increased by
Depreciation reduced by -6753.266 6753.266 -6753.266 -4256.539367
Inventory value will go COGS will go up
Inventory down by 5600 -5600 -3529.643354
profit should go down by -22229.56 -14011.1462
Reported Income(i.e. income
before tax) 137363 86579
Profit afer doing adjustments 115133.44 72567.8538
so profit will go down by -16.18% -16.18%

Given Data
taxes 50784
reported profit(i.e. income
before income tax) 137363
income tax % 36.97%

Analysis:
Nuware is trying to show higher profit by showing less Provisions for bad debt(PBD)
% of PBD is always calculated on gross account receivables and not on net account
receivables
% rate of depreciation is calculated on gross fixed assets and not on net fixed assets
In case of Nuware, as useful life is considered high as compared to RP, so annual
depreciation expense is lower for Nuware which leads to higher profit for Nuware
COGs will be increased as LIFO reserves have been reduced from 35100 to 29500=>profit
will be reduced by 5600

Session 13-Case: America Online Inc.


Earnings (2004) = 26% of sales of 2004
= 26% * 16 bn
= 4.16 bn
PE Ratio of 2004 =24
So 2004 forecasted Market price = 24* 4.16 bn = 99.84 bn

Market price of year 1999 = PV(99.84 bn) = 99.84/(1+0.1)^5 = 61.992 bn


Assumption r=10% here

Number of shares outstanding = 1.1 bn


So market price per share = 61.992 bn/1.1bn= 56.3572 $ per share

But market price of equity in 1999 = $105 per share


Total market price of equity in 1999 = 105* 1.1 bn= 115.5 bn
Market price of equity in 2004 = FV(115.5 bn) = 115.5*(1+0.1)^5=186.01 bn

Forecasted PE ratio= 186.01/4.16=44.71 ~=Expected PE ratio,i.e. 50

So buying shares is worthwhile as they are not considered growth, if they consider growth also
market price will be higher than this.

Session 14-Case: Tyco


1. Formulas used:

ROE= earnings of this year/average value of equity


Residual Value of Equity = (ROE- Expected cost of Capital)*(Average book value of
equity)
Residual Value of Equity = PAT (Average book value of equity)*(cost of capital)
Value of Equity = (Current year book value of equity) + (Residual value of
equity/Expected cost of capital)
Tyco
1997 1998 1999 2000 2001 2002 2003 2004 2005
PAT -0.39 1.17 1.02 2.76 3.46 -9.18 0.98 2.88 3
Book value of equity 3.43 9.9 12.37 17.03 31.73 24.16 26.48 30.4 32.6
Average book value of equity 3.43 6.665 11.135 14.7 24.38 27.945 25.32 28.44 31.5
-
Return on equity 0.1137 0.175544 0.091603 0.187755 0.14192 -0.3285 0.038705 0.101266 0.095238
Residual value of equity(by -
formula 1) -0.733 0.5035 -0.0935 1.29 1.022 11.9745 -1.552 0.036 -0.15
Residual value of equity(by
formula 2) -0.733 1.17 1.02 2.76 3.46 -9.18 0.98 2.88 3
Value of Equity -3.9 14.935 11.435 29.93 41.95 -95.585 10.96 30.76 31.1

Given
Expected cost of capital 10.00%

Session 15-Case: CitiGroup

Citigroup
1996 1998 2000 2002 2004 2006 2008
PAT 7.6 7 13.5 15.3 17 21.5 -27.7
Book value of equity 40.5 48.8 64.5 85.3 108.2 119.8 71
Average book value of equity 40.5 44.65 56.65 74.9 96.75 114 95.4
-
Return on equity 0.187654 0.156775 0.238305 0.204272 0.175711 0.188596 0.29036
Residual value of equity(by formula 1) 3.55 2.535 7.835 7.81 7.325 10.1 -37.24
Residual value of equity(by formula 2) 3.55 7 13.5 15.3 17 21.5 -27.7
Value of Equity 76 74.15 142.85 163.4 181.45 220.8 -301.4

Given
Expected cost of capital 10.00%

Session 16-Case: Cisco Systems


1. Formulas used:
Core Return on Net Operating Assets = (Core Operating income after tax)/(Average
Net Operating Assets)
Core Residual Operating Income=[(Core return on Net Operating Assets)
(Required Rate of Return)]*(average Net Operating Assets)
Core Residual Operating Income=[(Total Core Operating Income after tax)
(required rate of return)*(Average Net operating assets)]
Value of Equity = (Current year Common Shareholders equity) + [(Residual
Operating Income)/(required rate of return)]
If growth in residuals by g% then, Value of Equity= [(Current Year Common
Shareholders equity) + [(1+g)*Residual Operating Income/(Required rate of return
g)]]
2007 2008 2009 2010
Sales 39540 36117 40040
Common Equity 31480 34353 38677 44285
Net Operating Assets 15622 15011 13971 18708
% growth in Net Operating Assets -3.91% -6.93% 33.91%
Average Net Operating Assets 15622 15316.5 14491 16339.5
Net Financial Assets 15858 19342 24706 25577
Average Net Financial Assets 15858 17600 22024 25141.5
Core operating Income after tax 7535 5898 7607
Core Return on Net Operating Assets 49.20% 40.70% 46.56%
Core operating Income after tax/Sales 19.06% 16.33% 19.00%
Asset Turnover(sales/Average NOA) 2.58153 2.492375 2.450503
Coe Residual Operating Income 6156.515 4593.81 6136.445
Core Residual Operating Income 6156.515 4593.81 6136.445
Value of Equity 102758.7 89719.33 112467.7
Value of Equity per share 18.1713 15.86549 19.88819
Given
Required Rate of Return 9.00%
No. of shares outstanding(mn) 5655
growth in residuals 5.00%

In 2010, calculate value of equity per share is $19.889 and actual share price is #20,
which means zero growth.

Value of equity = share price* number of shares outstanding=20*5655= 113100


113100 = 44285 + [6136 + (6136/(0.09-g))]

On solving above equation, growth rate g = 0.08% which is approximately zero


growth.

Value of Equity = Net Financial Assets + Net Operating Assets

If we subtract Net financial assets from value of equity, we will get the price of
operating assets. As operating assets are used for enterprise, we will get the
enterprise price.

So Enterprise price or Price of Operating Assets = 113100 25577 = 87523


Book value of Net operating assets = 18708 in 2010

Enterprise book to price to ratio = 18708/87523 = 0.21375

If growth rate is zero, then out of core return on Net operating asset of 46.56%,
0.21375*46.56=9.9638% is because of operating assets and remaining (1-
0.21375)*46.56= 36.6 is effect of growth. So Effective rate of return is 9.9638%, but
in our calculations we have taken ERR as 9%.

If growth g=3% in sales, then effect because of operating assets = 9.9638%*3 %*( 1-
0.21375) = 12.33%. So effective rate of return is 12.33% which is higher than ERR
taken by us which is 9%, so we should buy as calculated ERR> 9%

Question A] would you pay $15 for a share of Cisco Systems?


Answer: As the 2010 value of equity per share is $19.8888 which is higher than $15,
which means the cisco shares are undervalued, hence we can pay $15 for a share of
Cisco Systems

Question B] would you attribute the drop in stock price from 2000 to 2002 to
problems in Ciscos operations?
Answer: Yes, partly. As stock price drops can lead to loss of fundamental value

Question C] clearly the great Cisco is now challenged. What is the lesson here?
Answer: Buying growth is risky

Question D] in 2010, Cisco announced that it would pay a dividend of $0.24 per
share for the first time. Why might cisco be doing this? What effect do you think it
had on the share price?
Answer: very small effect on share price, shareholders will be satisfied,Cisco may be
doing this as there is no opportunity to invest this money.

Question E] In 2010, cisco borrowed about $5 billion. The firm has a high level of
financial assets on its balance sheet. Why would it borrow?
Answer: Cheap interest rate of borrowing.so it can buy at cheap rate today and buy
back its shares using this money, which will increase the demand of shares and price
of shares will be increased.

Question F] Goodwill on the 2010 balance sheet stood at $16674 million, up from
$12121 billion in 2007 because of acquisitions. Given that these acquisitions have
not been successful, what do you think might happen to the carrying value of the
goodwill in the future?
Answer: Write off the goodwill in 5 years if successful. If market price is zero, show
loss of goodwill as impairment of goodwill

Session 17-Case: Microsoft Corporation


Company got Tax benefit of 4002 on loss to company from issuing shares to
staff at discounted share price (i.e. stock options). But company didnt show
the loss on issue of shares, it only showed tax benefit of 4002 in equity
As tax benefit is 4002 and tax rate is 37.5%, means the amount from issue
of shares = 4002/0.375=10672 out of which 4002 is tax benefit and 10672-
4002= 6670 is the loss on shares which company should show as an
expense in income statement

Beginning Balance 13844


Beginning Retained Earnings 13614
27458
Transactions with shareholders
1. Shares Issued 2843
2. Shares repurchases -186
3. shares repurchased -4686
4. Loss on stock options to staff -6670
-8699
Tax benefits for shareholders 4002

Also company has shown the unrealized investment gain in balance sheet
which it should show in income statement before net income, so net income
will go down. Translation gain should also be shown in income statement,
which will change the net income.
If comprehensive income is increased then residual value will also increase
and enterprise value will also increase.

Net Income 7012


Unrealized Investment Gain 2724
Translation Gain 166
Dividends of preference shares -13
Loss on stock options to staff -6670
Comprehensive Income for Equity 3219

Proceeds from sale of put warrants (value = 472) has been shown by
company in equity, but as per rules, till the times these put warrants are
exercised, the company should show this as a liability( this is a contingent
liability and should be shown in footnotes also which company has not done)
and if it is exercised then it should be shown as equity
So this value is increasing value of equity. So actual value of equity = 39792-
472=39320

Session 18-Case: XYZ Company

Question 1 Answer:
o Net financial obligations = Financial liabilities financial assets =
1320-1221=-99
o Financial Leverage = Net financial Obligations/common equity=
99/16649=0.5946%
o Net Operating Assets = Operating assets operating
liabilities=23457-6709=16748
o Operating Liabilities Leverage = operating liabilities/Net Operating
assets = 6709/16748= 0.401
o Tax on interest income= 11(1-0.39)=4.29 and tax on operating
income=978-4.39=974
o So operating profit after tax = earnings before income tax tax=
2524-974=1549
o So after tax profit margin =operating profit after tax/sales
1549/26776=5.79%

Question 2 Answer:
o Return on beginning net operating assets = 9.3%
o RNOA = EBIT/(NWC + Fixed assets)=after tax profit margin*asset
turnover ratio
o So 9.3% = 5.79% * (26776/Net operating assets)
o So Net operating assets = 16772.478
o Residual Operating Income = Operating income after tax
Beginning cost of operating assets = 1549 (0.04*16672) = 882.12

Question 3 Answer:
o Net change in net operating assets = Closing Net operating assets
Beginning net operating assets = (23457-6709) 16672.478= 75.52
o Closing FCF = Operating Income after tax Net change in net
operating assets = 1549 75.52 = 1473.4778
Question 4 Answer:
o Value of Equity = common equity + (residual operating income/cost
of operating assets) = 16649 + (882.12/0.04)=38719
o Beginning FCF= closing FCF/(1+ Cost of operating Assets) =
1473/(1+0.04)=1416.3461
Question 5 Answer:
o Market value of equity = number of shares outstanding*market price
per share = 2336*50=116800
o So 116800 = 16649 + (882.8*g)/(0.04-g) where g is the growth rate
o On solving above equation we get growth rate g = 3.9%
Question 6 Answer:
o Enterprise price = Market Value of Equity + Net financial obligations
= 116800 + 99 = 116899
o Enterprise price to sales ratio= enterprise price/sales =
116899/26776 = 4.3658
o Market value of equity to sales ratio = 116800/26776 = 4.3621

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