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    Sampa Video Case

    Uploaded by

    Rahul Bhatnagar
    The document provides financial information for Sampa Video Case and calculates the unlevered and levered value of the company using the APV and WACC approaches. The unlevered value is calculated to be Rs. 1,228,600 using the APV method by discounting the projected free cash flows at 15.8% and adding the present value of the terminal value. When debt of Rs. 7,50,000 is added, the levered value is Rs. 15,28,485, which includes the tax shield benefit of the debt. Finally, keeping the debt to value ratio at 25%, the WACC is calculated as 15.12% and the levered value is Rs

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    Sampa Video Case

    Uploaded by

    Rahul Bhatnagar
    305 views6 pages
    The document provides financial information for Sampa Video Case and calculates the unlevered and levered value of the company using the APV and WACC approaches. The unlevered value is calculated to be Rs. 1,228,600 using the APV method by discounting the projected free cash flows at 15.8% and adding the present value of the terminal value. When debt of Rs. 7,50,000 is added, the levered value is Rs. 15,28,485, which includes the tax shield benefit of the debt. Finally, keeping the debt to value ratio at 25%, the WACC is calculated as 15.12% and the levered value is Rs

    Original Description:

    Sampa video case solved from the course of Advance Corporate Finance.

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    The document provides financial information for Sampa Video Case and calculates the unlevered and levered value of the company using the APV and WACC approaches. The unlevered value is calculated to be Rs. 1,228,600 using the APV method by discounting the projected free cash flows at 15.8% and adding the present value of the terminal value. When debt of Rs. 7,50,000 is added, the levered value is Rs. 15,28,485, which includes the tax shield benefit of the debt. Finally, keeping the debt to value ratio at 25%, the WACC is calculated as 15.12% and the levered value is Rs

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    305 views6 pages

    Sampa Video Case

    Uploaded by

    Rahul Bhatnagar
    The document provides financial information for Sampa Video Case and calculates the unlevered and levered value of the company using the APV and WACC approaches. The unlevered value is calculated to be Rs. 1,228,600 using the APV method by discounting the projected free cash flows at 15.8% and adding the present value of the terminal value. When debt of Rs. 7,50,000 is added, the levered value is Rs. 15,28,485, which includes the tax shield benefit of the debt. Finally, keeping the debt to value ratio at 25%, the WACC is calculated as 15.12% and the levered value is Rs

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 6

    Sampa Video Case

    What is the unlevered value of the Company


    Using adjusted Present Value (APV) approach, value of a firm can be
    calculated.
    Value of unlevered firm = Present Value of FCFF + PV of Terminal Value
    Present Investments

    Using CAPM model and beta of Kramer.com and City retrieve.com, (which
    is given as 1.5) expected return on equity for sampa video will be
    ke = Rf + Mkt Risk Premium* beta
    ke = 5+1.5*7.2 = 15.8%

    Amounts in 000
    Sales
    EBITD
    Less Depreciation
    EBIT
    Taxes @ 40%
    EBIAT
    Depreciation
    Operating Cash Flow
    (OCF)
    Less CAP EX
    Less Changes in NWC
    Free Cash Flow

    2002
    1200
    180
    200
    (20)
    8
    (12)
    200
    188

    2003
    2400
    360
    225
    135
    (54)
    81
    225
    306

    2004
    3900
    585
    250
    335
    (134)
    201
    250
    451

    2005
    5600
    840
    275
    565
    (226)
    339
    275
    614

    2006
    7500
    1125
    300
    825
    (330)
    495
    300
    795

    (300)
    0
    (112)

    (300)
    0
    6

    (300)
    0
    151

    (300)
    0
    314

    (300)
    0
    495

    FCFF : EBIT - Tax + Depreciation Capital expenditure Increase in Net


    Working Capital

    Present Value of FCFF


    2002

    2003

    2004

    2005

    2006

    -112

    151

    314

    495

    Free Cash
    Flows
    Discount
    Factor

    Terminal
    Value
    4812.5

    0.86

    0.74

    0.64

    0.55

    0.48

    0.48

    Present
    Value

    (96.7)

    4.5

    97.2

    174.6

    238

    2,311

    (r/off)
    With growth of firm @6% after year 2006,
    Terminal Value at year 2006 will be = 495 * 1.05 / 0.108 = 4,812.5
    PV of Terminal value @15.8% = 2,311
    Value of unlevered firm as per APV method = PV of FCCF Initial
    Investment

    Therefore,
    Value of unlevered Company (VU)
    1,228.6

    = 2,728.600 1,500 =

    Value of Company if is financed with Rs. 7,50,000


    debt constant forever

    Value of Levered Firm(VL) = Value of unlevered firm (VU)+tC*D

    Since Cost of debt is given as 6.8%,

    Present Value of tax shield will be:


    = 7,50,000 * 0.40 * 6.8% / 6.8%
    = 3,00,000

    Therefore, Value of Company when financed with Rs. 7,50,00 debt


    = 12,28,485 + 3,00,000
    = Rs. 15,28,485

    Value of Levered Firm(VL) = Rs. 15,28,485

    Value of Company if they finance keeping Debt /


    Value = 25%

    Project equity Beta (E) = Asset Beta + (asset Beta-debt beta)*D/E


    = 1.5+(1.25)*0.33 = 1.917

    With CAPM model, Cost of equity will be


    = 5+1.917*7.2
    = 18.8%
    Therefore WACC

    = 18.8*0.75 + 0.6*6.8 * 0.25


    = 15.12%

    2002
    Free Cash
    Flows
    Discount
    Factor
    Present Value

    2003

    2005

    2006

    (112,0
    00)

    00

    151,0
    00

    314,0
    00

    495,0
    00

    0.87

    0.75

    0.66

    0.57

    0.49

    (97,2
    90)

    6,0

    2004

    4,5
    27

    98,9
    75

    Therefore Total FCFF

    = 29,69,972

    Less Initial Investment

    =15,00,000

    Therefore NPV

    =14,69,972

    Value of Firm (VL): Rs. 14,69,972

    178,78
    3

    244,8
    22

    Terminal
    Value
    5,135,8
    70
    0.49
    2,540,1
    54

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