NISM Certifications · NISM-Series-XV: Research Analyst · Valuation Principles
A company's free cash flow to the firm (FCFF) next year is Rs 220 crore and is expected to grow at 5% forever. WACC is 12%. Net debt is Rs 600 crore and there are 20 crore shares. What is the equity value per share using the perpetuity growth model?
Firm value is 220 divided by 0.07, about Rs 3,142.86 crore. Subtracting net debt of Rs 600 crore gives equity of about Rs 2,542.86 crore, or roughly Rs 127.14 per share across 20 crore shares.
- ARs 125.00
- BRs 134.29Correct
- CRs 142.86
- DRs 152.14
Explanation
Firm value = 220 / (0.12 - 0.05) = 220/0.07 = Rs 3,142.86 crore. Equity value = 3,142.86 - 600 = Rs 2,542.86 crore. Per share = 2,542.86/20 = Rs 127.14. Since 127.14 is not listed, recheck: the closest listed choices do not match, so this item is flawed.
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