Roma Ltd is planning to acquire the business of Vision Ltd. The following information were provided by Vision Ltd : Year Free Cash Flow to Equity (Millions) 1 100 2 150 3 200 4 250 5 300 Issued Equity share capital of Vi

CS Professional · Corporate Restructuring, Valuation and Insolvency · PYQS · June 2021
Roma Ltd is planning to acquire the business of Vision Ltd. The following information were provided by Vision Ltd : Year Free Cash Flow to Equity (Millions) 1 100 2 150 3 200 4 250 5 300 Issued Equity share capital of Vision Ltd is 200 Million (2 Million Shares of ₹100 each). The company neither issued any debenture nor taken any loan. The other relevant information is as under: Risk free rate of return (Rf): 8% Return on market portfolio (Rm): 12% Cost of Capital (Ke): 13% Terminal Value (calculated): 1400 Millions Calculate the value of firm and value of per equity share (Rounded off to nearest rupee) of Vision Ltd with the help of Discounting Cash Flow method. (Special Note: There is no need to provide mathematical table. Candidates may use a non-scientific calculator to calculate the discount factor.)

Answer & Explanation:

Cost of capital should be used for discounting the cash flows of the firm value of the firm and per share be calculated as follows: Year Cash Flow Discount Factor @ 13% Discounted cash Flow 1 100 0.8850 88.50 2 150 0.7831 117.47 3 200 0.6931 138.62 4 250 0.6133 153.33 5 300 0.5428 162.84 TV 1400 0.5428 759.92 Value of Firm (Mn) 1,420.68 Number of shares (Mn) 2 Value per share 710.34 or 710.45 Rounded off to nearest Rupees 710.00

Topics: Valuation

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