Suggested Solution of Exercise 1

time line -> 0 1 2 3 4 5

Revenue (Price x Units) 25200 40500 82500 77000 44000
Less: VC 6720 10800 21000 19600 12000
Less: FC 5000 5000 5000 5000 5000
Less: Depreciation 9160 9160 9160 9160 9160
Less: OC 3100 3100 3100 3400 3400
EBIT 1220 12440 44240 39840 14440
Less: Tax 366 3732 13272 11952 4332
EAT 854 8708 30968 27888 10108
Add: Depreciation 9160 9160 9160 9160 9160
Adjustment of NWC -700 -80 20 40 100 700
Fixed Assets Investment -45,800
Net Cash Flows -46,500 9934 17888 40168 37148 19968
PV of Net Future Cash Flows 8638 13526 26411 21239 9928
Value of the Project = 79742
NPV 33242
time line -> 0 1 2 3 4 5 6
Net FCFs for company 9934 17888 40168 37148 19968 21166
(perpetual period)
235178.
Terminal CF 7
Net Cash flows 9934 17888 40168 37148 255147
Enterprise Value (EV) 196668
Debt 25800
IV of Equity (EV- Debt) 170868
Total Number of shares 3000
Potential Shareholders expect to buy the share
IV per share 57
below this
Suggested Solution of Exercise 2

0 1 2 3 4 5
Revenue (Price x Units) 30240 36288 43546 52255 62706
Less: VC 8640 11197 14512 18807 24374
Less: FC 8000 8000 8000 8000 8000
Less: Depreciation 15000 15000 15000 15000 15000
Less: OC 3000 3000 3000 3000 3000
EBIT -4400 -909 3034 7447 12331
-
318.30 1061.80 2606.56 4315.94
Less: Tax -1540 4 1 2 6
EAT -2860 -591 1972 4841 8015
Add: Depreciation 15000 15000 15000 15000 15000
Adjustment of NWC -15000 0 0 0 0 15000
Fixed Assets Investment -75,000
Net Cash Flows -90,000 12140 14409 16972 19841 38015
PV of Net Future Cash Flows 10288 10348 10330 10234 16617
Value of the Project = 57816
NPV -32184

Time line -> 0 1 2 3 4 5 6

Net Cash Flows (perpetual 12140 14409 16972 19841 38015 39536
282399.
Terminal Value 6
Net CFs 12140 14409 16972 19841 320415
EV 181256
Debt 25000
IV of Equity 156256
Total no of shares (n) 5000
IV per share (IV of
31
Equity /n)
Suggested Solution of Exercise 3

Time line -> 0 1 2 3 4 5

Revenue (Price x Units) 108000 150000 168000 174000 186000
Less: VC 28800 40000 44800 46400 49600
Less: FC 14000 14000 14000 14000 14000
Less: Depreciation 60000 60000 60000 60000 60000
Less: OC 2600 2600 2600 2600 2600
EBIT 2600 33400 46600 51000 59800
Less: Tax 780 10020 13980 15300 17940
EAT 1820 23380 32620 35700 41860
Add: Depreciation 60000 60000 60000 60000 60000
Adjustment of NWC -8600 -400 0 1000 3000 7000
Fixed Assets Investment -300,000
Net Cash Flows -308,600 61420 83380 93620 98700 108860
PV of Net Future Cash Flows 54839 66470 66637 62726 61770
Value of the Project = 312442
NPV 3842

Time line -> 0 1 2 3 4 5

Net FCFs 61420 83380 93620 98700 108860
163290
terminal CFs (FCF6/(WACC-g) 0
174176
Adjusted Net FCFs for the company 61420 83380 93620 98700 0
Enterprise Value 1238993
Debt 120000
IV of Equity 1118993
Total No of shares 18000 shares
IV per share 62
Current Market Price per share 30
The share is undervalued.
Suggested Solution of Exercise 4

Time line -> 0 1 2 3 4 5

Revenue (Price x Units) 172200 212150 261369 322007 396713
Less: VC 49200 60614 74677 92002 113346
Less: FC 12000 12000 12000 12000 12000
Less: Depreciation 90000 90000 90000 90000 90000
Less: OC 9000 9000 9000 9000 9000
EBIT 12000 40536 75692 119005 172366
18923.08 29751.24 43091.53
Less: Tax 3000 10134 8 4 3
EAT 9000 30402 56769 89254 129275
Add: Depreciation 90000 90000 90000 90000 90000
Adjustment of NWC -18000 0 0 -4000 0 14000
-
Fixed Assets Investment 450,000
-
Net Cash Flows 468,000 99000 120402 142769 179254 233275
PV of Net Future Cash Flows 85345 89478 91466 99000 111065
Value of the Project = 476355
NPV 8355

Time line -> 0 1 2 3 4 5 6

Net FCFs 99000 120402 142769 179254 233275 240273
1848252.
terminal CFs (FCF6/(WACC-g) 6
Adjusted Net FCFs for the
99000 120402 142769 179254 2081527
company
135633
Enterprise Value 2
Debt 90000 % of Debt 20%
126633
IV of Equity 2 Equity 360,000
Face
Total No of shares 36000 shares value 10
IV per share 35
Current Market Price per
share 27
The share is undervalued.