Valuation Using DCF techniques
BoA is having 2 options to acquire a company suggest which one is better? Option 1- They could acquire SBI by paying $ 2 million and expected cash flows for coming 10 years is $ 50,00,000 for coming 10 years. Assume expected life of SBI to be 10 years and interest rate to be 8%. ? Option 2- They could acquire American Express by paying $ 2.5 million and expected cash flows for coming 10 years is $ 55,00,000 for coming 10 years. Assume after 10 years American express could be sold for $ 1 Million and interest rate to be 8%.
NPV? Net Present Value is discounting technique of Capital Budgeting. ? NPV = PV of Cash Inflow PV of Cash Outflow
Internal Rate of Return? Also known as the economic rate of return, the internal rate of return (IRR) is an indication of the level of growth that can be expected from a project or acquisition. The calculation generates a percentage figure by comparing the value of the proposal s cash outflows with its cash inflows as they vary over the lifetime of the investment.
Calculate IRR
ABC Ltd. Is considering to acquire XYZ co. , the cost of the XYZ is 3,50,000 and the expected return for coming 6 years Year1 10,00,000 2 10,00,000 3 10,00,000 4 10,00,000 5 5,00,000 6 5,00,000 Calculate IRR
Free Cash Flow to Equity
? Free Cash Flow to Equity ? FCFE = Net Income ( Capital Exp Dep) Change in Non Cash WC Principal Payments on Debt + New Debt Issue
Free Cash flow to the Firm? FCFF= EBIT ( 1- T) ( Capex- Dep)- Change in noncash working capital
doc_313531806.pptx
BoA is having 2 options to acquire a company suggest which one is better? Option 1- They could acquire SBI by paying $ 2 million and expected cash flows for coming 10 years is $ 50,00,000 for coming 10 years. Assume expected life of SBI to be 10 years and interest rate to be 8%. ? Option 2- They could acquire American Express by paying $ 2.5 million and expected cash flows for coming 10 years is $ 55,00,000 for coming 10 years. Assume after 10 years American express could be sold for $ 1 Million and interest rate to be 8%.
NPV? Net Present Value is discounting technique of Capital Budgeting. ? NPV = PV of Cash Inflow PV of Cash Outflow
Internal Rate of Return? Also known as the economic rate of return, the internal rate of return (IRR) is an indication of the level of growth that can be expected from a project or acquisition. The calculation generates a percentage figure by comparing the value of the proposal s cash outflows with its cash inflows as they vary over the lifetime of the investment.
Calculate IRR
ABC Ltd. Is considering to acquire XYZ co. , the cost of the XYZ is 3,50,000 and the expected return for coming 6 years Year1 10,00,000 2 10,00,000 3 10,00,000 4 10,00,000 5 5,00,000 6 5,00,000 Calculate IRR
Free Cash Flow to Equity
? Free Cash Flow to Equity ? FCFE = Net Income ( Capital Exp Dep) Change in Non Cash WC Principal Payments on Debt + New Debt Issue
Free Cash flow to the Firm? FCFF= EBIT ( 1- T) ( Capex- Dep)- Change in noncash working capital
doc_313531806.pptx