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CS Professional · Corporate Restructuring, Valuation and Insolvency · Valuation of Business and Assets for Corporate Restructuring

Meenakshi Engineering Ltd expects free cash flows to the firm of Rs 20 crore at the end of year 1, growing at a constant 5% per year forever. Its WACC is 15%. Debt is Rs 60 crore and surplus cash is Rs 10 crore. It has 4 crore equity shares. Using the perpetuity growth DCF, what is the value per share?

The value per share is Rs 37.50. Enterprise value is 20 divided by (15% minus 5%), which is Rs 200 crore; subtracting net debt of Rs 50 crore gives equity of Rs 150 crore, and dividing by 4 crore shares gives Rs 37.50.

  1. ARs 37.50Correct
  2. BRs 50.00
  3. CRs 35.00
  4. DRs 40.00

Explanation

Enterprise value = 20 / (0.15 - 0.05) = Rs 200 crore. Net debt = 60 - 10 = 50, so equity = Rs 150 crore. Per share = 150/4 = Rs 37.50. Rs 50 ignores net debt; Rs 35 deducts debt but ignores cash (140/4); Rs 40 adds cash wrongly... (160/4).

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