CASE STUDY

CORPORATE VALUATION
Wesker Ltd. is a mid-size profit making company. It manufactures automobile
spare parts. The company was established in 2002; the gestation period is over
and it has started making profits. The management wants to know the value of
their company.
The year 2006 could be considered as the base year and on the financials of that
year projections of the next years could be made. The next five years are years
of super normal profits. The company has competitive advantage, experience
has resulted in cost efficiency and the branding of their products is good. They
will continue to increase capacity with CAPEX to meet demands.
Projections further than 5 years are difficult and hence, year 2012 is considered
as the Terminal year. But it is estimated that after 5 years there will be many new
entrants in the market, they will lose their share in the markets, they will stop
the capital expenditures.
In the initial period, discount rate of 10% is considered and in the Terminal period
12% is considered due to the increase in risk.
The company has interest bearing debt of Rs.3000 and has no Marketable
Securities.Share Capital is Rs.2000 of Face value of Rs.20.
The Revenues and Expenditures except for Interest Expenditure all relate to
Operating activities.
With the help of the following information, answer the following questions:
1.
2.
3.
4.

How to do Cash Flow projections?

What is the significance of Terminal Year?
Explain the Perpetual concept in company form of organization.
Comment on the difference between growth companies and zero growth
companies.
5. How can DCF spreadsheet technique be used to value a company?
Information:
Revenues in the base year is Rs.8658. Revenue growth rate in initial
period is 15.5%. Discount rate in initial period is 10%. EBITD is
20%,Depreciation is 5% , Interest exp is 3% , capital exp is 9% and change
in NWC is 4 % of Revenues.Tax rate is 40%.
In Terminal period there is no growth rate. Discount rate is 12%. Capital
exp. is 5% of revenues.
(solved in class)