NISM Certifications · NISM-Series-XV: Research Analyst · Valuation Principles
A stock's FCFF next year is Rs 100 crore, expected to grow at 5% forever. The weighted average cost of capital is 10%. Net debt is Rs 400 crore and there are 10 crore shares. What is the equity value per share?
Equity value per share is Rs 160. Firm value is FCFF of Rs 100 crore divided by WACC minus growth (5%), giving Rs 2,000 crore. Deducting net debt of Rs 400 crore leaves Rs 1,600 crore, which divided by 10 crore shares gives Rs 160.
- ARs 160Correct
- BRs 200
- CRs 40
- DRs 196
Explanation
Firm value = 100 / (0.10 - 0.05) = Rs 2,000 crore. Equity = 2,000 - 400 = Rs 1,600 crore. Per share = 1,600 / 10 = Rs 160. Rs 200 forgets to deduct net debt, and Rs 40 divides net debt by shares.
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