Accounts
This query is : Resolved
ANKUR GUPTA
(Querist)
26 December 2015
I have a query in the chapter of Valuation. Please solve the following question
Smart co. Ltd. has free cash flow of Rs. 19 lakh and is expected to grow at the rate of 26.5% for the next 5 years. Its ratio of investment to after tax NOI is 0.5. The applicable tax rate is 30%. Smart's cost of capital is 10%. After the period of super normal growth Smart Ltd. is not expected to grow any furhter. What is the Value of Smart Ltd.
Smart co. Ltd. has free cash flow of Rs. 19 lakh and is expected to grow at the rate of 26.5% for the next 5 years. Its ratio of investment to after tax NOI is 0.5. The applicable tax rate is 30%. Smart's cost of capital is 10%. After the period of super normal growth Smart Ltd. is not expected to grow any furhter. What is the Value of Smart Ltd.
Amol S Joglekar
(Expert)
26 December 2015
You need to forecast the expected rate of return so as to evaluate the share value
ANKUR GUPTA
(Querist)
28 December 2015
Sir Thank You for your prompt reply.
But my Query is still not solved. How would I calculate the expected rate of return which will be used in getting the share value
But my Query is still not solved. How would I calculate the expected rate of return which will be used in getting the share value
Amol S Joglekar
(Expert)
29 December 2015
It is the function of the market rate of interest + risk associated with the proposal
In the current scenario, a minimum of 15% can be taken as expected rate of return.
In the current scenario, a minimum of 15% can be taken as expected rate of return.
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