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Sagar Industries deals in production of consumer durables and their expected

sales are as follows:


Sales
Revenue

Years
1
2
3
4
5
6
7
8

80
100
150
220
300
260
230
200

Condensed Balance Sheet for the current year.


Liabilities
Equity
Funds
12%
Debt

Amt

Asset
Net Fixed
120 asset
Current
80 asset
200

amt
170
30
200

Additional Information:
1. Long term assets are subject to 15 % rate of depreciation on diminishing
balance method.
2. Working capital in terms of investment in current asset are estimated at
20% of sales.
3. It is expected to have non operating assets in terms of investments in
marketable securities in the initial year. The expected after tax non
operating cash flow in year 1 -= Rs.0.5 million.
4. Effective tax rate estimated is 30%.
5. The free cash flow is estimated to grow at 5% PER ANNUM AFTER 8 YEARS.
6. Its variable expense will amount to 40% of sales revenue. Fixed cash
operating cost are estimated to be Rs.16 million per year for the first four
years and at Rs.20 million for 5-8 years.
7. In addition, an extensive advertisement campaign will be launched
requiring annual outlays as follows:
Amou
Year
nt
1
5
2 to 3
15
4 to 6
30
7 to 8
10
8. Company has planned the following capital expenditure ( Assumed to have
been incurred at the beginning of the year) for the next 8 years.
Year

Amou
nt

1
2
3
4
5
6
7
8

5
8
20
25
35
25
15
10
Calculate the Discounted cash flow value of the firm and equity.