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FM SLP

Company undertaken
GROUP NO.
ROLL NO. 140
141
153
125

4
BAJAJ AUTO LTD
11
SAKSHI AGRAWAL
Akshay Peshwe
Sanjeeda Siddique
Hina Khera

COST OF DEBT
Credit Rating for BAJAJ AUTO LTD is AAA for bank loans as obtained from the Website of crisil.
Risk free rate by Indian Government for 5 year
Bonds Yeild is taken from the trading Economics
webiste as shown in the screen shot is 8.05%
Rf

8.05

Here we have assumed the time period to be 5 years


The company has taken long term borrowings for 5 years
Debt Risk Premium
Cost of Debt before tax
Tax rate

0.53
8.58
0.3

Cost of Debt

6.006

As India, does not have corporate bond market,


we choose government bond market to calculate
our Cost of Debt for our company BAJAJ AUTO

ebsite of crisil.

CALCULATING Beta by taking data of last 1 year, from NSE India for both NIFTY and BAJAJ AUTO
Beta is a measure of the volatility of a stock's returns relative to the equity returns of the overall market.
Date

NIFTY Closing

30-Dec-13

6291.1

31-Dec-13

6304

1-Jan-14

6301.65

2-Jan-14

6221.15

3-Jan-14

6211.15

6-Jan-14

6191.45

7-Jan-14

6162.25

8-Jan-14

6174.6

9-Jan-14

6168.35

10-Jan-14

6171.45

13-Jan-14

6272.75

14-Jan-14

6241.85

15-Jan-14

6320.9

16-Jan-14

6318.9

17-Jan-14

6261.65

20-Jan-14

6303.95

21-Jan-14

6313.8

22-Jan-14

6338.95

23-Jan-14

6345.65

24-Jan-14

6266.75

27-Jan-14

6135.85

28-Jan-14

6126.25

29-Jan-14

6120.25

30-Jan-14

6073.7

31-Jan-14

6089.5

3-Feb-14

6001.8

4-Feb-14

6000.9

5-Feb-14

6022.4

6-Feb-14

6036.3

7-Feb-14

6063.2

10-Feb-14

6053.45

11-Feb-14

6062.7

12-Feb-14

6084

Daily Returns(%)
0.205
-0.037
-1.277
-0.161
-0.317
-0.472
0.200
-0.101
0.050
1.641
-0.493
1.266
-0.032
-0.906
0.676
0.156
0.398
0.106
-1.243
-2.089
-0.156
-0.098
-0.761
0.260
-1.440
-0.015
0.358
0.231
0.446
-0.161
0.153
0.351

Date

BAJAJ Close Price

30-Dec-13

1900.7

31-Dec-13

1910.85

1-Jan-14

1917.4

2-Jan-14

1900.05

3-Jan-14

1895.55

6-Jan-14

1888.3

7-Jan-14

1889.95

8-Jan-14

1918.3

9-Jan-14

1909.45

10-Jan-14

1900.3

13-Jan-14

1895.8

14-Jan-14

1870.55

15-Jan-14

1894

16-Jan-14

1907.75

17-Jan-14

1933.45

20-Jan-14

1931.5

21-Jan-14

1942.4

22-Jan-14

1949.7

23-Jan-14

1939.05

24-Jan-14

1931.7

27-Jan-14

1912.8

28-Jan-14

1944.7

29-Jan-14

1912.95

30-Jan-14

1920.85

31-Jan-14

1901.5

3-Feb-14

1830.8

4-Feb-14

1868.25

5-Feb-14

1894.7

6-Feb-14

1896.95

7-Feb-14

1935.35

10-Feb-14

1935.35

11-Feb-14

1936.5

12-Feb-14

1927.5

13-Feb-14

6001.1

14-Feb-14

6048.35

17-Feb-14

6073.3

18-Feb-14

6127.1

19-Feb-14

6152.75

20-Feb-14

6091.45

21-Feb-14

6155.45

24-Feb-14

6186.1

25-Feb-14

6200.05

26-Feb-14

6238.8

28-Feb-14

6276.95

3-Mar-14

6221.45

4-Mar-14

6297.95

5-Mar-14

6328.65

6-Mar-14

6401.15

7-Mar-14

6526.65

10-Mar-14

6537.25

11-Mar-14

6511.9

12-Mar-14

6516.9

13-Mar-14

6493.1

14-Mar-14

6504.2

18-Mar-14

6516.65

19-Mar-14

6524.05

20-Mar-14

6483.1

21-Mar-14

6493.2

22-Mar-14

6494.9

24-Mar-14

6583.5

25-Mar-14

6589.75

26-Mar-14

6601.4

27-Mar-14

6641.75

28-Mar-14

6695.9

31-Mar-14

6704.2

1-Apr-14

6721.05

2-Apr-14

6752.55

3-Apr-14

6736.1

4-Apr-14

6694.35

7-Apr-14

6695.05

-1.363
0.787
0.413
0.886
0.419
-0.996
1.051
0.498
0.226
0.625
0.611
-0.884
1.230
0.487
1.146
1.961
0.162
-0.388
0.077
-0.365
0.171
0.191
0.114
-0.628
0.156
0.026
1.364
0.095
0.177
0.611
0.815
0.124
0.251
0.469
-0.244
-0.620
0.010

13-Feb-14

1902.85

14-Feb-14

1839.6

17-Feb-14

1845.35

18-Feb-14

1844.65

19-Feb-14

1820.9

20-Feb-14

1842.4

21-Feb-14

1862.7

24-Feb-14

1861.8

25-Feb-14

1902.25

26-Feb-14

1920.9

28-Feb-14

1946.35

3-Mar-14

1917.05

4-Mar-14

1921.95

5-Mar-14

1920.65

6-Mar-14

1957.9

7-Mar-14

1954.7

10-Mar-14

2005

11-Mar-14

1986.55

12-Mar-14

1959

13-Mar-14

1966.7

14-Mar-14

1974.3

18-Mar-14

1994.9

19-Mar-14

2008.7

20-Mar-14

1972.9

21-Mar-14

1977.85

22-Mar-14

1981.1

24-Mar-14

2021.45

25-Mar-14

2014.05

26-Mar-14

2039.6

27-Mar-14

2072.35

28-Mar-14

2058

31-Mar-14

2083.6

1-Apr-14

2065.2

2-Apr-14

2053.6

3-Apr-14

2053.35

4-Apr-14

2028.9

7-Apr-14

2022.6

9-Apr-14

6796.2

10-Apr-14

6796.4

11-Apr-14

6776.3

15-Apr-14

6733.1

16-Apr-14

6675.3

17-Apr-14

6779.4

21-Apr-14

6817.65

22-Apr-14

6815.35

23-Apr-14

6840.8

25-Apr-14

6782.75

28-Apr-14

6761.25

29-Apr-14

6715.25

30-Apr-14

6696.4

2-May-14

6694.8

5-May-14

6699.35

6-May-14

6715.3

7-May-14

6652.55

8-May-14

6659.85

9-May-14

6858.8

12-May-14

7014.25

13-May-14

7108.75

14-May-14

7108.75

15-May-14

7123.15

16-May-14

7203

19-May-14

7263.55

20-May-14

7275.5

21-May-14

7252.9

22-May-14

7276.4

23-May-14

7367.1

26-May-14

7359.05

27-May-14

7318

28-May-14

7329.65

29-May-14

7235.65

30-May-14

7229.95

2-Jun-14

7362.5

3-Jun-14

7415.85

4-Jun-14

7402.25

1.511
0.003
-0.296
-0.638
-0.858
1.559
0.564
-0.034
0.373
-0.849
-0.317
-0.680
-0.281
-0.024
0.068
0.238
-0.934
0.110
2.987
2.266
1.347
0.000
0.203
1.121
0.841
0.165
-0.311
0.324
1.246
-0.109
-0.558
0.159
-1.282
-0.079
1.833
0.725
-0.183

9-Apr-14

2031.3

10-Apr-14

2022.15

11-Apr-14

2007.55

15-Apr-14

2004.4

16-Apr-14

2000.55

17-Apr-14

2016.05

21-Apr-14

2014.15

22-Apr-14

2003.35

23-Apr-14

2004.65

25-Apr-14

1996.05

28-Apr-14

1985

29-Apr-14

1939.5

30-Apr-14

1912.15

2-May-14

1906.7

5-May-14

1918.85

6-May-14

1900.35

7-May-14

1868.15

8-May-14

1879.25

9-May-14

1919.95

12-May-14

1948.15

13-May-14

1977.3

14-May-14

2041.75

15-May-14

1950.5

16-May-14

1931.7

19-May-14

1878.35

20-May-14

1866.4

21-May-14

1961.15

22-May-14

1986.75

23-May-14

1976.25

26-May-14

1961.2

27-May-14

1972

28-May-14

1948.4

29-May-14

1941.2

30-May-14

1943.95

2-Jun-14

1974.4

3-Jun-14

1970.15

4-Jun-14

2002.5

5-Jun-14

7474.1

6-Jun-14

7583.4

9-Jun-14

7654.6

10-Jun-14

7656.4

11-Jun-14

7626.85

12-Jun-14

7649.9

13-Jun-14

7542.1

16-Jun-14

7533.55

17-Jun-14

7631.7

18-Jun-14

7558.2

19-Jun-14

7540.7

20-Jun-14

7511.45

23-Jun-14

7493.35

24-Jun-14

7580.2

25-Jun-14

7569.25

26-Jun-14

7493.2

27-Jun-14

7508.8

30-Jun-14

7611.35

1-Jul-14

7634.7

2-Jul-14

7725.15

3-Jul-14

7714.8

4-Jul-14

7751.6

7-Jul-14

7787.15

8-Jul-14

7623.2

9-Jul-14

7585

10-Jul-14

7567.75

11-Jul-14

7459.6

14-Jul-14

7454.15

15-Jul-14

7526.65

16-Jul-14

7624.4

17-Jul-14

7640.45

18-Jul-14

7663.9

21-Jul-14

7684.2

22-Jul-14

7767.85

23-Jul-14

7795.75

24-Jul-14

7830.6

25-Jul-14

7790.45

0.971
1.462
0.939
0.024
-0.386
0.302
-1.409
-0.113
1.303
-0.963
-0.232
-0.388
-0.241
1.159
-0.144
-1.005
0.208
1.366
0.307
1.185
-0.134
0.477
0.459
-2.105
-0.501
-0.227
-1.429
-0.073
0.973
1.299
0.211
0.307
0.265
1.089
0.359
0.447
-0.513

5-Jun-14

2000.9

6-Jun-14

2048.4

9-Jun-14

2161.75

10-Jun-14

2152.5

11-Jun-14

2180.85

12-Jun-14

2185.6

13-Jun-14

2170.7

16-Jun-14

2169.75

17-Jun-14

2160.35

18-Jun-14

2150.6

19-Jun-14

2160.25

20-Jun-14

2179.8

23-Jun-14

2191.1

24-Jun-14

2221.15

25-Jun-14

2275.85

26-Jun-14

2289

27-Jun-14

2309.1

30-Jun-14

2316.2

1-Jul-14

2334.7

2-Jul-14

2349.8

3-Jul-14

2300.1

4-Jul-14

2299.2

7-Jul-14

2302.7

8-Jul-14

2226.3

9-Jul-14

2169.65

10-Jul-14

2152.2

11-Jul-14

2133.95

14-Jul-14

2127.55

15-Jul-14

2155.75

16-Jul-14

2137.1

17-Jul-14

2087.65

18-Jul-14

2081.25

21-Jul-14

2070.7

22-Jul-14

2070.15

23-Jul-14

2105.3

24-Jul-14

2108.7

25-Jul-14

2100.75

28-Jul-14

7748.7

30-Jul-14

7791.4

31-Jul-14

7721.3

1-Aug-14

7602.6

4-Aug-14

7683.65

5-Aug-14

7746.55

6-Aug-14

7672.05

7-Aug-14

7649.25

8-Aug-14

7568.55

11-Aug-14

7625.95

12-Aug-14

7727.05

13-Aug-14

7739.55

14-Aug-14

7791.7

18-Aug-14

7874.25

19-Aug-14

7897.5

20-Aug-14

7875.3

21-Aug-14

7891.1

22-Aug-14

7913.2

25-Aug-14

7906.3

26-Aug-14

7904.75

27-Aug-14

7936.05

28-Aug-14

7954.35

1-Sep-14

8027.7

2-Sep-14

8083.05

3-Sep-14

8114.6

4-Sep-14

8095.95

5-Sep-14

8086.85

8-Sep-14

8173.9

9-Sep-14

8152.95

10-Sep-14

8094.1

11-Sep-14

8085.7

12-Sep-14

8105.5

15-Sep-14

8042

16-Sep-14

7932.9

17-Sep-14

7975.5

18-Sep-14

8114.75

19-Sep-14

8121.45

-0.536
0.551
-0.900
-1.537
1.066
0.819
-0.962
-0.297
-1.055
0.758
1.326
0.162
0.674
1.059
0.295
-0.281
0.201
0.280
-0.087
-0.020
0.396
0.231
0.922
0.689
0.390
-0.230
-0.112
1.076
-0.256
-0.722
-0.104
0.245
-0.783
-1.357
0.537
1.746
0.083

28-Jul-14

2084.05

30-Jul-14

2079.4

31-Jul-14

2075.9

1-Aug-14

2057.9

4-Aug-14

2088.1

5-Aug-14

2155.6

6-Aug-14

2143.75

7-Aug-14

2139.25

8-Aug-14

2121.65

11-Aug-14

2129.3

12-Aug-14

2135.55

13-Aug-14

2147.95

14-Aug-14

2135

18-Aug-14

2134.5

19-Aug-14

2198.2

20-Aug-14

2198.8

21-Aug-14

2268.05

22-Aug-14

2266.35

25-Aug-14

2251.6

26-Aug-14

2260

27-Aug-14

2280.3

28-Aug-14

2258.7

1-Sep-14

2260.55

2-Sep-14

2258.6

3-Sep-14

2225.85

4-Sep-14

2301.9

5-Sep-14

2339.65

8-Sep-14

2359.3

9-Sep-14

2321.15

10-Sep-14

2354.7

11-Sep-14

2336.55

12-Sep-14

2348.45

15-Sep-14

2332.55

16-Sep-14

2302.65

17-Sep-14

2320.25

18-Sep-14

2393.45

19-Sep-14

2412.35

22-Sep-14

8146.3

23-Sep-14

8017.55

24-Sep-14

8002.4

25-Sep-14

7911.85

26-Sep-14

7968.85

29-Sep-14

7958.9

30-Sep-14

7964.8

1-Oct-14

7945.55

7-Oct-14

7852.4

8-Oct-14

7842.7

9-Oct-14

7960.55

10-Oct-14

7859.95

13-Oct-14

7884.25

14-Oct-14

7864

16-Oct-14

7748.2

17-Oct-14

7779.7

20-Oct-14

7879.4

21-Oct-14

7927.75

22-Oct-14

7995.9

23-Oct-14

8014.55

27-Oct-14

7991.7

28-Oct-14

8027.6

29-Oct-14

8090.45

30-Oct-14

8169.2

31-Oct-14

8322.2

3-Nov-14

8324.15

5-Nov-14

8338.3

7-Nov-14

8337

10-Nov-14

8344.25

11-Nov-14

8362.65

12-Nov-14

8383.3

13-Nov-14

8357.85

14-Nov-14

8389.9

17-Nov-14

8430.75

18-Nov-14

8425.9

19-Nov-14

8382.3

20-Nov-14

8401.9

0.306
-1.580
-0.189
-1.132
0.720
-0.125
0.074
-0.242
-1.172
-0.124
1.503
-1.264
0.309
-0.257
-1.473
0.407
1.282
0.614
0.860
0.233
-0.285
0.449
0.783
0.973
1.873
0.023
0.170
-0.016
0.087
0.221
0.247
-0.304
0.383
0.487
-0.058
-0.517
0.234

22-Sep-14

2412.55

23-Sep-14

2393.6

24-Sep-14

2364.95

25-Sep-14

2350.85

26-Sep-14

2340.8

29-Sep-14

2305.05

30-Sep-14

2351.6

1-Oct-14

2336.1

7-Oct-14

2336.35

8-Oct-14

2348.5

9-Oct-14

2376.1

10-Oct-14

2353.65

13-Oct-14

2348.8

14-Oct-14

2412

16-Oct-14

2363.55

17-Oct-14

2373.2

20-Oct-14

2412.6

21-Oct-14

2412.05

22-Oct-14

2494.9

23-Oct-14

2529.7

27-Oct-14

2517.45

28-Oct-14

2499.25

29-Oct-14

2551.25

30-Oct-14

2577.5

31-Oct-14

2611.05

3-Nov-14

2574.25

5-Nov-14

2570.7

7-Nov-14

2539.7

10-Nov-14

2543.4

11-Nov-14

2549.55

12-Nov-14

2599.55

13-Nov-14

2609.8

14-Nov-14

2652.85

17-Nov-14

2657.65

18-Nov-14

2643.95

19-Nov-14

2674.95

20-Nov-14

2655.3

21-Nov-14

8477.35

24-Nov-14

8530.15

25-Nov-14

8463.1

26-Nov-14

8475.75

27-Nov-14

8494.2

28-Nov-14

8588.25

1-Dec-14

8555.9

2-Dec-14

8524.7

3-Dec-14

8537.65

4-Dec-14

8564.4

5-Dec-14

8538.3

8-Dec-14

8438.25

9-Dec-14

8340.7

10-Dec-14

8355.65

11-Dec-14

8292.9

12-Dec-14

8224.1

15-Dec-14

8219.6

16-Dec-14

8067.6

17-Dec-14

8029.8

18-Dec-14

8159.3

19-Dec-14

8225.2

22-Dec-14

8324

23-Dec-14

8267

24-Dec-14

8174.1

26-Dec-14

8200.7

0.898
0.623
-0.786
0.149
0.218
1.107
-0.377
-0.365
0.152
0.313
-0.305
-1.172
-1.156
0.179
-0.751
-0.830
-0.055
-1.849
-0.469
1.613
0.808
1.201
-0.685
-1.124
0.325

21-Nov-14

2673.45

24-Nov-14

2675.1

25-Nov-14

2644

26-Nov-14

2614.45

27-Nov-14

2649.6

28-Nov-14

2640.8

1-Dec-14

2636.3

2-Dec-14

2602.35

3-Dec-14

2609.9

4-Dec-14

2625.1

5-Dec-14

2619.9

8-Dec-14

2614.65

9-Dec-14

2608.85

10-Dec-14

2569.5

11-Dec-14

2563.2

12-Dec-14

2521.35

15-Dec-14

2517.9

16-Dec-14

2494.75

17-Dec-14

2463.05

18-Dec-14

2503.15

19-Dec-14

2473.55

22-Dec-14

2477.3

23-Dec-14

2519.25

24-Dec-14

2477.7

26-Dec-14

2480.7

The daily returns of both are correlated and have been verfied
with the actual beta(0.60) on the website of livemint.com as
shown in the snapshot given in the Cost Of Equity tab.

he overall market.

Daily Returns for BAJAJ


0.534
0.343
-0.905
-0.237
-0.382
0.087
1.500
-0.461
-0.479
-0.237
-1.332
1.254
0.726
1.347
-0.101
0.564
0.376
-0.546
-0.379
-0.978
1.668
-1.633
0.413
-1.007
-3.718
2.046
1.416
0.119
2.024
0.000
0.059
-0.465

Using Regression
Beta

0.624

Covariance(market,stock)

0.399

Variance(market)

0.642

Beta

0.622

stock's return/market's return

This beta just means that when market stocks increases by 1 %,


then the stock of BAJAJ AUTO increases by 0.62%. This is calculated
by taking the covariance of market stock with the stock variations
of BAJAJ AUTO LTD. This can also be done doing regression analysis
of both market stock variation and BAJAJ AUTO stock variation.
Hence BAJAJ's price is 38% less volatile than the market.

-1.279
-3.324
0.313
-0.038
-1.288
1.181
1.102
-0.048
2.173
0.980
1.325
-1.505
0.256
-0.068
1.939
-0.163
2.573
-0.920
-1.387
0.393
0.386
1.043
0.692
-1.782
0.251
0.164
2.037
-0.366
1.269
1.606
-0.692
1.244
-0.883
-0.562
-0.012
-1.191
-0.311

0.430
-0.450
-0.722
-0.157
-0.192
0.775
-0.094
-0.536
0.065
-0.429
-0.554
-2.292
-1.410
-0.285
0.637
-0.964
-1.694
0.594
2.166
1.469
1.496
3.259
-4.469
-0.964
-2.762
-0.636
5.077
1.305
-0.529
-0.762
0.551
-1.197
-0.370
0.142
1.566
-0.215
1.642

-0.080
2.374
5.534
-0.428
1.317
0.218
-0.682
-0.044
-0.433
-0.451
0.449
0.905
0.518
1.371
2.463
0.578
0.878
0.307
0.799
0.647
-2.115
-0.039
0.152
-3.318
-2.545
-0.804
-0.848
-0.300
1.325
-0.865
-2.314
-0.307
-0.507
-0.027
1.698
0.161
-0.377

-0.795
-0.223
-0.168
-0.867
1.468
3.233
-0.550
-0.210
-0.823
0.361
0.294
0.581
-0.603
-0.023
2.984
0.027
3.149
-0.075
-0.651
0.373
0.898
-0.947
0.082
-0.086
-1.450
3.417
1.640
0.840
-1.617
1.445
-0.771
0.509
-0.677
-1.282
0.764
3.155
0.790

0.008
-0.785
-1.197
-0.596
-0.428
-1.527
2.019
-0.659
0.011
0.520
1.175
-0.945
-0.206
2.691
-2.009
0.408
1.660
-0.023
3.435
1.395
-0.484
-0.723
2.081
1.029
1.302
-1.409
-0.138
-1.206
0.146
0.242
1.961
0.394
1.650
0.181
-0.515
1.172
-0.735

0.684
0.062
-1.163
-1.118
1.344
-0.332
-0.170
-1.288
0.290
0.582
-0.198
-0.200
-0.222
-1.508
-0.245
-1.633
-0.137
-0.919
-1.271
1.628
-1.183
0.152
1.693
-1.649
0.121

urn/market's return

is calculated

8.000

6.000

4.000

2.000
Series1

Linear (Series1)

-3.000

-2.000

-1.000

0.000
0.000

1.000

2.000

3.000

-2.000

y = 0.6241x + 0.0487
R = 0.1372
-4.000

-6.000

4.000

COST OF EQUITY
MRP for India

8.3

For Market Risk Premium, we took the Mraket Risk Premium for India which is
taken from the excel sheet containing Risk Premiums of various countries, already
calculated by Mr. Aswath Damodaran.

Beta (as calculated)

0.624

Risk Free Rate

8.05

Cost of Equity

13.23

Here the cost of equity has been calculated using the CAPM method for BAJAJ AUTO
as we have the market data available for it. It becomes an easy way to calculate
the COE of BAJAJ using the beta obtained from regression analysis of stock of BAJAJ versus MARKET.

WACC
Cost of Debt (obtd from Calculations)
Cost of Equity (obtd from Calculations)
Long Term Borrowings(in crores)
Market Price of Shares
No. Of Outstanding Shares (from Balance sheet)
Common Equity(in crores)
Number of Preferred Stock
Total Equity( in crores)
Total Debt and Equity(in crores)
Proportion of Debt
Proportion of Common Equity

WACC

6.006
13.23
57.74
2452.15
289367020
70957.13
0
70957.13
71014.87
0.0008131
0.9991869

13.224

Here we have used market value of weights of debt and Equity because the market values reflect the
%

market's expectations of the size, the timing and the risk of future cash flows.

%
WACC is the weighted average cost of capital that BAJAJ uses as a whole of debt and Equity
It can be observed that BAJAJ is majorly financed by Equity as compared to debt, and the WACC tells
us that the interest that BAJAJ is paying on the overall financing it gets from debt and equity is 13.22%
So the overall required return for BAJAJ comes out to be 13.22%

rket values reflect the

, and the WACC tells

t and equity is 13.22%

Now for Bajaj Auto Ltd which is presently into manufacturing of 2 and 3 wheeler automobiles, we think of an unrelated proje
Here since we want to introduce a new project in the company we look at some companies like mahindra & mahindra, tata m
use pure play method for different project, so we use Accounting Beta method where we find out the beta by conducting reg
we just chose and the slope of that regression can give us the new accounting beta, which help us calculate new Cost of Equit

ROA for BAJAJ AUTO over period of 5 years


2014

2013

Net income
Total Assets

3241.95

3043.57

14747.6

12478.62

ROA

0.2198

0.2439

(in crores)

Average ROA for sample companies over 5 years


MARUTI SUZUKI
TATA MOTORS
Mahindra & Mahindra

(in millions)
Net income
Total Assets
Net income
Total Assets
Net income
Total Assets
TOTAL NI
TOTAL TA

2014

2013

27830
305357
3345.2
497344.2
37583.5
312886.5
68758.7
1115587.7

23921
266880
3018.1
521847.7
33528.2
274535.9
60467.3
1063263.6

0.0616

0.0569

AVERAGE ROA

Beta calculation for BAJAJ


0.7000
0.6000

y = 0.686x + 0.2791
R = 0.1275

0.5000
0.4000
0.3000
0.2000
0.1000
0.0000
0.0000 0.0500 0.1000 0.1500 0.2000 0.2500 0.3000

Years
2014
2013
2012
2011
2010

ROA of BAJAJ
Linear (ROA of BAJAJ)

Slope of this project is the accounte

think of an unrelated project like manufacturing of 4 wheeler project needs to be introduced.


mahindra & mahindra, tata motors and Maruti Suzuki which deal in 4 wheelers. We cannot
t the beta by conducting regression of ROAs of our company bajaj and average ROAs of the sample of companies
s calculate new Cost of Equity. Using the new COE we can calculate discounting rate(WACC) for unrelated project.

2012

2011

2010

3004.05

3339.73

1703.6

11081.07

5265.08

4268.61

0.2711

0.6343

0.3991

2012

2011

2010

16352
223022
12422.3
545192.8
28788.9
239119.8
57563.2
1007334.6

22888
143412
18118.2
379352.1
26621
130730.7
67627.2
653494.8

17899
125809
22400.8
331000.2
20877.5
109507.1
149806.9
566316.3

0.0571

0.1035

0.2645

X-Axis

Y-Axis

Average ROA
0.0616
0.0569
0.0571
0.1035
0.2645

ROA of BAJAJ
0.2198
0.2439
0.2711
0.6343
0.3991

this project is the accounted beta for BAJAJ's four wheeler project

ACCOUTING BETA METHOD

TING BETA METHOD

NEW COST OF EQUITY IS CALCULATED USING THE NEW ACCOUNTED BETA

MRP for India


Risk Free Rate
Beta as observed
Cost of Equity

Cost of Debt (obtd from Calculations)


NEW Cost of Equity (obtd from Calculations)
Long Term Borrowings(in crores)
Market Price of Shares
No. Of Outstanding Shares (from Balance sheet)
Common Equity(in crores)
Number of Preferred Stock
Total Equity( in crores)
Total Debt and Equity(in crores)
Proportion of Debt
Proportion of Common Equity

WACC(DISCOUNTING RATE)

8.3
8.05
0.686
13.7438

6.006
13.7438
57.74
2452.15
289367020
70957.13
0
70957.13
71014.87
0.0008131
0.9991869

13.738

Using the new cost of Equity as obtained, we calculated


Previously in the WACC it was observed to be 13.22 for BAJAJ AUTO, it was assumed that if BAJAJ AUTO
starts manufacturing four-wheelers too, then the new WACC came out to be 13.74, so it can be observed that
the WACC of the project has increased and hence the riskiness of the company overall. So if BAJAJ AUTO
starts manufacturing four-wheelers then the overall risk of the company increases too. Also, it can be observed
that the relationship between ROA of BAJAJ and Average ROA of the market of Expected project to be taken
13.74% is the appropriate discount rate which is to be used for the cashflows of the new project which has been
undertaken in this case with new risk calculated in the form of beta = 0.68, using the sample of
four-wheeler companies like Maruti Suzuki, TATA motors and Mahindra & Mahindra to calculate the overall risk
asscociated with BAJAJ AUTO if it takes up the new project of four-wheeler.

BAJAJ AUTO

n be observed that
BAJAJ AUTO

, it can be observed

oject to be taken

oject which has been

ulate the overall risk