NISM Series XV: Solved Book Case Study 4 - Advanced Valuation & Cash Flows

NISM Book Case Study 4: Advanced Valuation & Cash Flow Analysis

⚠️ Dhaval's Exam Disclaimer & Tips:

Listen carefully: NISM is asking this question only. Same name, same formula, just they are changing values sometimes; sometimes values are not even changed. Just by heart these 5 case studies, I am giving guarantee that u will pass!

My Guarantee: This set is critical for the calculation-heavy part of the exam. Understanding FCFF and WACC is the key to scoring high.

Scenario: You have been given the financial statement for the last reported year for a company. Use the provided data to solve the valuation questions below.

Q1. The AGM approved a dividend that was just paid. If the dividend is expected to grow at a constant rate of 5%, what is the fair price of the share assuming a cost of equity of 12%?

Options:
A. Rs. 113 | B. Rs. 142 | C. Rs. 194 | D. Rs. 204

View Correct Answer & Calculation

Correct Answer: D. Rs. 204

Formula (Gordon Growth Model): Value = D1 / (k - g)

Calculation:
1. Dividend (D0): EPS (17) * Payout Ratio (0.8) = 13.6
2. D1 (Next Year): 13.6 * (1 + 0.05) = 14.28
3. Fair Value: 14.28 / (0.12 - 0.05) = 14.28 / 0.07 = 204

Q2. Which of the following is closest to the free cash flow to firm (FCFF) for 2XX8?

Options:
A. Rs. 1,624 lakhs | B. Rs. 1,677 lakhs | C. Rs. 1,747 lakhs | D. Rs. 1,800 lakhs

View Correct Answer & Calculation

Correct Answer: C. Rs. 1,747 lakhs

Formula: FCFF = Operating Cash Flow – Capital Expenditure – Tax benefit on interest payments

Calculation:
1. Tax Benefit: Interest (175.8) * Tax rate (0.3) = 52.74
2. FCFF: 4200 – 2400 – 52.74 = 1747.26

Q3. Based on the following information, calculate the cost of equity (Ke) of the company? (Rf: 6%, Market Return: 10%, Beta: 1.2)

Options:
A. 7.20% | B. 10.8% | C. 12.0% | D. 18.0%

View Correct Answer & Calculation

Correct Answer: B. 10.8%

Formula (CAPM): Ke = Rf + β * (Rm – Rf)

Calculation:
6% + 1.2 * (10% - 6%) = 6% + 1.2 * (4%) = 6% + 4.8% = 10.8%

Q4. Total assets are worth Rs. 12,000 lakhs. If cost of equity is 12% and cost of debt (net of tax) is 8%, what is the weighted average cost of capital (WACC)?

Options:
A. 8.0% | B. 10.0% | C. 11.0% | D. 11.5%

View Correct Answer & Calculation

Correct Answer: D. 11.5%

Formula: WACC = (Weight of Debt * Cost of Debt) + (Weight of Equity * Cost of Equity)

Calculation:
1. Total Fair Value: 1598 (Debt) + 12000 (Equity) = 13598
2. Weights: Debt = 11.75%, Equity = 88.25%
3. WACC: (11.75% * 8%) + (12% * 88.25%) = 0.0094 + 0.1059 = 11.53%

Q5. Estimated FCFF is 2,000 lakhs next year, growing 10% the year after, and 5% perpetually post that. If WACC is 11%, what is the fair Enterprise Value?

Options:
A. Rs. 33,333 lakhs | B. Rs. 34,835 lakhs | C. Rs. 42,087 lakhs | D. Rs. 42,700 lakhs

View Correct Answer & Calculation

Correct Answer: B. Rs. 34,835 lakhs

Calculation:
1. Year 2 FCFF: 2000 * 1.1 = 2200
2. Terminal Value at Year 1: 2200 / (0.11 - 0.05) = 36,666
3. Present Value: (2000 / 1.11) + (36666 / 1.11) = 1801 + 33033 = 34834

NISM Book Case Study 4 Solved! Reach out to Dhaval Visariya for the final study set.

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Dhaval Visariya

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