Case Study - 1
You are valuing shares of unlisted Pharma Company. Calculate Cost of Capital from following data
Risk Free Rate
Equity Risk Premium
Cost of Debt
Debt : Equity Ratio
8.00%
9%
12%
1.20
Debt equity ratio of other companies
Name of the Company
Debt/equity
ratio
Pfizer
Glaxo
Ranbaxy
DR Reddy
IPCA Lab
Average
Relevered Beta
Risk free rate
ERP
Beta
Cost of equity
Cost of debt
WACC
‐
‐
0.50
0.70
0.30
Beta as
worked
Unlevered Beta
out
0.44
0.44
0.27
0.27
0.71
0.53
0.93
0.63
0.56
0.47
0.47
0.85
8.00%
9%
0.85
15.63%
1
15.63%
8.11%
1.2
9.73%
2.2
25.36%
11.53%
Case Study - 2
You are valuing shares Tata Steel Limited. Calculate Cost of Equity using Gordon Dividend Model
Current Market Price
Expected Dividend
Expected Growth Rate of Dividend
Dividend Yield
cost of equity
390.00
8.00
15%
2.05%
17.05%
Case Study - 3
You are valuing shares of Dabur India. Calculate WACC from following data
Risk Free Rate
Equity Risk Premium
Beta
Cost of Debt
Debt : Equity Ratio
8.00%
9%
0.7
10%
0.50
Other Info
Company has some of its manufacturing facilities in tax free zone. 30% of its profit for next 5 years is exempt from tax.
WACC for First 5 years
cost of equity
14.30%
1
14.30%
Cost of debt
7.73%
0.5
3.86%
1.5
18.16%
WACC
12.11%
WACC for subsequent Years
cost of equity
14.30%
1
14.30%
Cost of debt
6.76%
0.5
3.38%
1.5
17.68%
WACC
11.79%
Case Study - 4
You are valuing shares of XYZ Limited. Following is the data
Risk Free Rate
Equity Risk Premium
Beta
Cost of Term Loan
Coupon on FCCB
8.00%
9%
1.3
12%
2%
Additional info
1) FCCB are convertible into equity shares at fixed conversion price of Rs.180 per share
2) Premium payable to FCCB holders upon redemption after 5 years from date of issue will be such amount which gives them Yield to Maturity of 7.5%
3) Business of the Company is financed as follows
Equity
Debt
FCCB
40%
40%
20%
Calculate cost of capital under following scenarios
a) current market price of the Company is Rs.105
b) current market price of the Company is Rs.200
c) current market price of the Company is Rs.280