1. CORPORATE VALUATION USING ASSET-BASED APPROACHES
The following is the balance sheet of Hypothetical Co. Ltd. as on March 31, current year.
Liabilities Amount
(Rs. lakhs)
Assets Amount
(Rs. lakhs)
Share Capital
 40,000 11% Pref shares of
Rs.100 each, fully paid up
 1,20000 Equity shares of Rs.100
each, fully paid up
40
120
Fixed Assets
Less: Dep
150
30 120
P&L a/c 23 Current Assets:
Stocks
Debtors
Cash & Bank
Preliminary Expenses
100
50
10 160
2
10% Debentures 20
Trade creditors 71
Provision for Y tax 8
282 282
Additional Info:
1. A firm of professional valuers has provided the following mkt. estimates of its various assets:
FA: Rs.130 lakhs, Stocks: Rs.102 lakhs, Debtors: Rs.45 lakhs. Other assets should to be taken at
balance sheet values.
2. The company is yet to declare & pay dividend on preference shares.
3. The valuers also estimate the current sale proceeds of firm’s assets in the event of its
liquidation: FA: Rs.105 lakhs, Stocks: Rs.90 lakhs, Debtors: Rs.40 lakhs. Besides the firm has to
incur Rs.15 lakhs as liquidation costs.
You are required to compute the value of the firm per share as per –
i) Book Value
ii) Adjusted Book Value
iii) Liquidation Value

2. DISCOUNTED CASH FLOW TECHNIQUE FOR CORP VALUATION
Sagar Industries deals in the production & sales of consumer durables. Its expected sales revenues (in Rs.
millions) for the next 8 years are –
Years 1 2 3 4 5 6 7 8
Sales Revenue 80 100 150 220 300 260 230 200
The condensed Balance Sheet as on March 31, current year is –
Liabilities Amount (Rs. mn) Assets Amount (Rs. mn)
Equity funds 120 Current Assets 30
12% Debt 80 LT Assets (net) 170
200 200
Additional Inputs –
1. Variable expenses will amount to 40% of sales revenue.
2. Fixed cash operating costs are estimated to be Rs.16 mn/yr. for the first 4 years & at Rs. 20 mn
for years 5-8.
3. In addition, an extensive advertising campaign will be launched, requiring annual outlays as
follows –
Year 1 2-3 4-6 7-8
Amount (Rs mn) 5 15 30 10
4. LT assets are subject to 15% rate of depreciation on diminishing balance method.
5. The co. has planned the following capital expenditure (assumed to have been incurred in the
beginning of each year) for the next 8 years
Year 1 2 3 4 5 6 7 8
Amount (Rs. mn) 5 8 20 25 35 25 15 10
6. WC in terms of investment in current assets is estimated at 20% of sales revenue.
7. It is expected to have non-operating assets in terms of investments in marketable securities in
the initial year only. The expected after tax non-operating cash flow in year 1 is Rs 0.5mn
8. Given the tax benefits to Sagar, the effective tax rate is estimated at 30%
9. The corporate equity capital is estimated at 16%.
10. Free cash flow to the firm are expected to grow at 5%/yr. after 8 yrs
Determine the discounted cash flow value of (a) firm (b) equity
NOTE: CALCULATE THE PRESENT VALUE OF FREE CASH FLOWS IN THE EXPLICIT PERIOD USING:
A: Sales Revenue
B:Less: Expenses
i. Var Cost
ii. Fixed Cash Op Exp
iii. Advtg. Exp

3. iv. Dep
C: PBT (A-B)
D: Less tax (30%)
E: Profit after tax (PAT)
F: Non Operating Income
G: Gross Cashflow (E+F+Dep)
H: Less: Investments
I:FCFF (G-H)
J: PVIF@13%
K: PV OF FCFF