CF-II ASSIGNEMENT

Name – Prasad Rathi Roll No – 18PGP238 Section - C

Current Condition
Firm value 1117445.19
Risk-free rate 6.68%
Country risk 1.40%
D/D+E 19.09%
D/E 23.60%
Debt value 213371.2
PBDIT 68980.1
Interest expense 10875.3
Interest coverage
ratio 6.342822727
Likely rating A2/A
Risk Premium 0.99%
Pre-tax cost of
debt 9.07%
Cost of Capital

If income drops by 30%

Iteration 1 Iteration 2
Debt Percent 10% Debt Percent 10%
Firm value 1117445.19 Firm value 1117445.19
Risk-free rate 6.68% Risk-free rate 6.68%
Country risk 1.40% Country risk 1.40%
D/D+E 10.00% D/D+E 10.00%
D/E 11.11% D/E 11.11%
Debt value 111744.519 Debt value 111744.519
PBDIT 48286.07 PBDIT 48286.07
Interest expense 10135.23 Interest expense 10135.23
Likely rating A2/A Likely rating A2/A
Risk Premium 0.99% Risk Premium 0.99%
Pre-tax cost of debt 9.07% Pre-tax cost of debt 9.07%

New Interest New Interest coverage

coverage ratio 4.764 ratio 4.764
New Rating A2/A New Rating A2/A
New Default spread 0.99% New Default spread 0.99%

Iteration 1 Iteration 2 Iteration 3

Debt Percent 20% Debt Percent 20% Debt Percent 20%
Firm value 1117445.19 Firm value 1117445.19 Firm value 1117445.19
Risk-free rate 6.68% Risk-free rate 6.68% Risk-free rate 6.68%
Country risk 1.40% Country risk 1.40% Country risk 1.40%
D/D+E 20.00% D/D+E 20.00% D/D+E 20.00%
D/E 25.00% D/E 25.00% D/E 25.00%
Debt value 223489.038 Debt value 223489.038 Debt value 223489.038
 CF-II ASSIGNEMENT
Name – Prasad Rathi Roll No – 18PGP238 Section - C

PBDIT 48286.07 PBDIT 48286.07 PBDIT 48286.07

Interest
Interest expense 20270.46 expense 22483.00 Interest expense 23376.95
Likely rating A2/A Likely rating Ba1/BB+ Likely rating Ba2/BB
Risk Premium 0.99% Risk Premium 1.98% Risk Premium 2.38%
Pre-tax cost of
Pre-tax cost of debt 9.07% debt 10.06% Pre-tax cost of debt 10.46%

New Interest New Interest New Interest coverage

coverage ratio 2.382 coverage ratio 2.148 ratio 2.066
New Rating Ba1/BB+ New Rating Ba2/BB New Rating Ba2/BB
New Default
New Default spread 1.98% spread 2.38% New Default spread 2.38%

Iteration 1 Iteration 2 Iteration 3

Debt Percent 30% Debt Percent 30% Debt Percent 30%
Firm value 1117445.19 Firm value 1117445.19 Firm value 1117445.19
Risk-free rate 6.68% Risk-free rate 6.68% Risk-free rate 6.68%
Country risk 1.40% Country risk 1.40% Country risk 1.40%
D/D+E 30.00% D/D+E 30.00% D/D+E 30.00%
D/E 42.86% D/E 42.86% D/E 42.86%
Debt value 335233.557 Debt value 335233.557 Debt value 335233.557
PBDIT 48286.07 PBDIT 48286.07 PBDIT 48286.07
Interest expense 30405.68 Interest expense 39054.71 Interest expense 56051.05
Likely rating A2/A Likely rating B2/B Likely rating Caa/CCC
Risk Premium 0.99% Risk Premium 3.57% Risk Premium 8.64%
Pre-tax cost of debt 9.07% Pre-tax cost of debt 11.65% Pre-tax cost of debt 16.72%

New Interest New Interest New Interest

coverage ratio 1.588 coverage ratio 1.236 coverage ratio 0.861
New Rating B2/B New Rating Caa/CCC New Rating Caa/CCC
New Default
New Default spread 3.57% spread 8.64% New Default spread 8.64%

Iteration 1 Iteration 2 Iteration 3

Debt Percent 40% Debt Percent 40% Debt Percent 40%
Firm value 1117445.19 Firm value 1117445.19 Firm value 1117445.19
Risk-free rate 6.68% Risk-free rate 6.68% Risk-free rate 6.68%
Country risk 1.40% Country risk 1.40% Country risk 1.40%
D/D+E 40.00% D/D+E 40.00% D/D+E 40.00%
D/E 66.67% D/E 66.67% D/E 66.67%
Debt value 446978.076 Debt value 446978.076 Debt value 446978.076
PBDIT 48286.07 PBDIT 48286.07 PBDIT 48286.07
Interest expense 40540.91 Interest expense 74734.73 Interest expense 98469.27
Likely rating A2/A Likely rating Caa/CCC Likely rating C2/C
Risk Premium 0.99% Risk Premium 8.64% Risk Premium 13.95%
 CF-II ASSIGNEMENT
Name – Prasad Rathi Roll No – 18PGP238 Section - C

Pre-tax cost of Pre-tax cost of

debt 9.07% Pre-tax cost of debt 16.72% debt 22.03%

New Interest New Interest New Interest

coverage ratio 1.191 coverage ratio 0.646 coverage ratio 0.490
New Rating Caa/CCC New Rating C2/C New Rating C2/C
New Default New Default New Default
spread 8.64% spread 13.95% spread 13.95%

Iteration 1 Iteration 2 Iteration 3

Debt Percent 50% Debt Percent 50% Debt Percent 50%
Firm value 1117445.1 Firm value 1117445.1 Firm value 1117445.1
9 9 9
Risk-free rate 6.68% Risk-free rate 6.68% Risk-free rate 6.68%
Country risk 1.40% Country risk 1.40% Country risk 1.40%
D/D+E 50.00% D/D+E 50.00% D/D+E 50.00%
D/E 100.00% D/E 100.00% D/E 100.00%
Debt value 558722.59 Debt value 558722.59 Debt value 558722.59
5 5 5
PBDIT 48286.07 PBDIT 48286.07 PBDIT 48286.07
Interest expense 50676.14 Interest expense 93418.42 Interest expense 123086.59
Likely rating A2/A Likely rating Caa/CCC Likely rating C2/C
Risk Premium 0.99% Risk Premium 8.64% Risk Premium 13.95%
Pre-tax cost of 9.07% Pre-tax cost of debt 16.72% Pre-tax cost of debt 22.03%
debt
New Interest 0.953 New Interest 0.517 New Interest 0.392
coverage ratio coverage ratio coverage ratio
New Rating Caa/CCC New Rating C2/C New Rating C2/C
New Default 8.64% New Default spread 13.95% New Default 13.95%
spread spread

Iteration 1 Iteration 2 Iteration 3

Debt Percent 60% Debt Percent 60% Debt Percent 60%
Firm value 1117445.19 Firm value 1117445.19 Firm value 1117445.1
9
Risk-free rate 6.68% Risk-free rate 6.68% Risk-free rate 6.68%
Country risk 1.40% Country risk 1.40% Country risk 1.40%
D/D+E 60.00% D/D+E 60.00% D/D+E 60.00%
D/E 150.00% D/E 150.00% D/E 150.00%
Debt value 670467.114 Debt value 670467.114 Debt value 670467.11
4
PBDIT 48286.07 PBDIT 48286.07 PBDIT 48286.07
Interest expense 60811.37 Interest expense 125444.40 Interest expense 147703.91
Likely rating A2/A Likely rating Ca2/CC Likely rating C2/C
Risk Premium 0.99% Risk Premium 10.63% Risk Premium 13.95%
Pre-tax cost of 9.07% Pre-tax cost of debt 18.71% Pre-tax cost of debt 22.03%
debt
 CF-II ASSIGNEMENT
Name – Prasad Rathi Roll No – 18PGP238 Section - C

New Interest 0.794 New Interest 0.385 New Interest 0.327

coverage ratio coverage ratio coverage ratio
New Rating Ca2/CC New Rating C2/C New Rating C2/C
New Default 10.63% New Default spread 13.95% New Default 13.95%
spread spread

Iteration 1 Iteration 2 Iteration 3

Debt Percent 70% Debt Percent 70% Debt Percent 70%
Firm value 1117445.1 Firm value 1117445.1 Firm value 1117445.19
9 9
Risk-free rate 6.68% Risk-free rate 6.68% Risk-free rate 6.68%
Country risk 1.40% Country risk 1.40% Country risk 1.40%
D/D+E 70.00% D/D+E 70.00% D/D+E 70.00%
D/E 233.33% D/E 233.33% D/E 233.33%
Debt value 782211.63 Debt value 782211.63 Debt value 782211.633
3 3
PBDIT 48286.07 PBDIT 48286.07 PBDIT 48286.07
Interest expense 70946.60 Interest expense 146351.80 Interest expense 172321.22
Likely rating A2/A Likely rating Ca2/CC Likely rating C2/C
Risk Premium 0.99% Risk Premium 10.63% Risk Premium 13.95%
Pre-tax cost of 9.07% Pre-tax cost of 18.71% Pre-tax cost of 22.03%
debt debt debt
New Interest 0.681 New Interest 0.330 New Interest 0.280
coverage ratio coverage ratio coverage ratio
New Rating Ca2/CC New Rating C2/C New Rating C2/C
New Default 10.63% New Default 13.95% New Default 13.95%
spread spread spread

Iteration 1 Iteration 2
Debt Percent 80% Debt Percent 80%
Firm value 1117445.19 Firm value 1117445.19
Risk-free rate 6.68% Risk-free rate 6.68%
Country risk 1.40% Country risk 1.40%
D/D+E 80.00% D/D+E 80.00%
D/E 400.00% D/E 400.00%
Debt value 893956.152 Debt value 893956.152
PBDIT 48286.07 PBDIT 48286.07
Interest expense 81081.82 Interest expense 196938.54
Likely rating A2/A Likely rating C2/C
Risk Premium 0.99% Risk Premium 13.95%
Pre-tax cost of debt 9.07% Pre-tax cost of debt 22.03%
New Interest 0.596 New Interest coverage 0.245
coverage ratio ratio
New Rating C2/C New Rating C2/C
New Default spread 13.95% New Default spread 13.95%
 CF-II ASSIGNEMENT
Name – Prasad Rathi Roll No – 18PGP238 Section - C

Iteration 1 Iteration 2
Debt Percent 90% Debt Percent 90%
Firm value 1117445.19 Firm value 1117445.19
Risk-free rate 6.68% Risk-free rate 6.68%
Country risk 1.40% Country risk 1.40%
D/D+E 90.00% D/D+E 90.00%
D/E 900.00% D/E 900.00%
Debt value 1005700.671 Debt value 1005700.671
PBDIT 48286.07 PBDIT 48286.07
Interest expense 91217.05 Interest expense 221555.86
Likely rating A2/A Likely rating C2/C
Risk Premium 0.99% Risk Premium 13.95%
Pre-tax cost of debt 9.07% Pre-tax cost of debt 22.03%
New Interest 0.529 New Interest coverage 0.218
coverage ratio ratio
New Rating C2/C New Rating C2/C
New Default spread 13.95% New Default spread 13.95%

Firm Value 1117445.2 FCFF 31868.8062 Implied

Growth Rate
EBIT 48286.07 WACC 14.01% 10.85%

Debt Rating Interest Debt Interest EBIT Interest Tax Rate

Portion Rate value amount coverage
ratio
0 A2/A 9.07% 0 0 48286 Infinte 34.00%
0.1 A2/A 9.07% 111745 10135 48286 4.76 34.00%
0.2 Ba2/BB 10.46% 223489 23377 48286 2.07 34.00%
0.3 Caa/CC 16.72% 335234 56051 48286 0.86 29.29%
C
0.4 C2/C 22.03% 446978 98469 48286 0.49 16.67%
0.5 C2/C 22.03% 558723 123087 48286 0.39 13.34%
0.6 C2/C 22.03% 670467 147704 48286 0.33 11.11%
0.7 C2/C 22.03% 782212 172321 48286 0.28 9.53%
0.8 C2/C 22.03% 893956 196939 48286 0.25 8.34%
0.9 C2/C 22.03% 1005701 221556 48286 0.22 7.41%
 CF-II ASSIGNEMENT
Name – Prasad Rathi Roll No – 18PGP238 Section - C

Debt Debt Interest Tax After tax Unlevered Equity Cost of WACC Growth Firm value
portion to rate Rate cost of beta beta equity rate
equity debt
0 0.00 9.07% 34.00% 5.99% 1.41 1.410 14.88% 14.88% 10.85% 877225.49
0.1 0.11 9.07% 34.00% 5.99% 1.41 1.513 15.37% 14.43% 10.85% 986219.06
0.2 0.25 10.46% 34.00% 6.90% 1.41 1.643 15.99% 14.17% 10.85% 1063911.13
0.3 0.43 16.72% 29.29% 11.82% 1.41 1.837 16.91% 15.39% 10.85% 778474.37
0.4 0.67 22.03% 16.67% 18.36% 1.41 2.193 18.61% 18.51% 10.85% 461097.59
0.5 1.00 22.03% 13.34% 19.09% 1.41 2.632 20.70% 19.90% 10.85% 390373.64
0.6 1.50 22.03% 11.11% 19.58% 1.41 3.290 23.84% 21.29% 10.85% 338460.04
0.7 2.33 22.03% 9.53% 19.93% 1.41 4.387 29.07% 22.67% 10.85% 298733.20
0.8 4.00 22.03% 8.34% 20.19% 1.41 6.580 39.54% 24.06% 10.85% 267352.61
0.9 9.00 22.03% 7.41% 20.40% 1.41 13.160 70.92% 25.45% 10.85% 241938.09

Debt (%) EBIDT Tax rate Implired WACC FCFF Firm value
Growth
0% 48286 34.00% 10.85% 14.88% 31869 877225
10% 48286 34.00% 10.85% 14.43% 31869 986219
20% 48286 34.00% 10.85% 14.17% 31869 1063911
30% 48286 29.29% 10.85% 15.39% 34143 834031
40% 48286 16.67% 10.85% 18.51% 40236 582153
50% 48286 13.34% 10.85% 19.90% 41846 512584
60% 48286 11.11% 10.85% 21.29% 42919 455819
70% 48286 9.53% 10.85% 22.67% 43686 409504
80% 48286 8.34% 10.85% 24.06% 44261 371311
90% 48286 7.41% 10.85% 25.45% 44708 339410