EXHIBIT 3: DAILY RETURNS OF COMPARABLE PUBLIC FIRMS (%) Date Source Dabur India Limited Kerala Ayurveda Limited Cipla Limited Torrent Dr. Reddy's Pharmace Laboratories Natural Foods & Market RFR uticals Herbal returns Ltd. Supplements Limited January 1, 2021 -0.01 -1.31 0.81 0.70 -0.27 -2.27 0.77 0.01 January 4, 2021 1.76 0.61 0.68 0.59 -0.01 -0.66 1.55 0.02 January 5, 2021 -0.85 -0.41 -0.60 0.28 0.53 -3.94 0.55 0.01 January 6, 2021 -0.93 -1.74 -0.30 0.03 -0.67 -1.58 -0.28 0.01 December 28, 2021 0.20 -1.60 0.33 0.15 -0.20 1.72 1.11 0.01 December 29, 2021 0.76 1.93 0.24 1.88 1.38 -0.28 0.07 0.01 December 30, 2021 0.85 -0.38 1.84 1.48 0.16 -1.85 -0.15 0.01 December 31, 2021 1.56 3.50 -0.91 0.05 2.74 0.76 1.01 0.01 ... ** www September 28, 2022 0.64 -1.75 -0.79 0.71 2.48 -4.98 -0.48 0.02 September 29, 2022 1.98 -1.00 0.58 -1.03 -1.40 1.39 -0.14 0.02 September 30, 2022 -0.51 3.03 -0.23 -0.27 -0.22 2.51 1.20 0.02 EXHIBIT 1: PROJECTED CASH FLOWS FOR THE HERBO EXPANSION PROJECT (* THOUSANDS) Year 1 2 3 4 5 6 7 8 Revenue 5,400 6,210 7,141.5 8,212.725 9,444.634 Expenses 4,860 5,589 6,427.35 7,391.453 EBIT 540 621 714.15 821.273 10,389.097 11,428.007 8,500.17 9,350.187 10,285.206 944.463 1038.91 1,142.801 9 10 12,570.808 13,827.888 15,210.677 11,313.727 12,445.099 13,689.609 1,257.081 1,382.789 1,521.068 Tax (30%) 162 186.3 Net earnings 378 434.7 214.245 499.905 246.382 283.339 574.891 661.124 311.673 727.237 342.84 799.96 377.124 879.957 414.837 967.952 456.32 1,064.747 Depreciation (10%) 200 Total cash flows 578 200 634.7 200 699.905 200 774.891 200 861.124 200 927.237 200 200 200 200 999.96 1,079.957 1,167.952 1,264.747 Note: Herbo Herbo Drugs & Pharmaceuticals; = INR - Indian rupee; US$1 = *79.6613 on September 1, 2022; EBIT = earnings before interest and taxes. Source: Compiled by the authors. EXHIBIT 2: FINANCIALS OF COMPARABLE PUBLIC FIRMS (MILLIONS) Company Dabur India Limited Total assets Non-current liabilities Market capitalization Net income Equity Kerala Ayurveda Limited Cipla Limited 86,877.3 917.8 4,986.3 947,450.5 333.1 944.73 14,329.3 8.9 257,911.6 5,106 726,960.2 29,579.3 Dr. Reddy's Laboratories Torrent Pharmaceuticals Ltd. 249,684 119,541.9 5,365 769,608.6 16,232 31,806.4 520,309.1 9,914.5 58,638.7 112.7 225,135.5 183,362 63,454.2 Debt 5,601.8 614.6 189.2 Source Natural Foods and 193.2 5.1 826.5 24.3 156 22,054 33,864.7 0.4 Herbal Supplements Limited Note: INR Indian rupee; US$1 = *79.6613 on September 1, 2022. Source: ProwessIQ, accessed March 15, 2023. WACC
EXHIBIT 3: DAILY RETURNS OF COMPARABLE PUBLIC FIRMS (%) Date Source Dabur India Limited Kerala Ayurveda Limited Cipla Limited Torrent Dr. Reddy's Pharmace Laboratories Natural Foods & Market RFR uticals Herbal returns Ltd. Supplements Limited January 1, 2021 -0.01 -1.31 0.81 0.70 -0.27 -2.27 0.77 0.01 January 4, 2021 1.76 0.61 0.68 0.59 -0.01 -0.66 1.55 0.02 January 5, 2021 -0.85 -0.41 -0.60 0.28 0.53 -3.94 0.55 0.01 January 6, 2021 -0.93 -1.74 -0.30 0.03 -0.67 -1.58 -0.28 0.01 December 28, 2021 0.20 -1.60 0.33 0.15 -0.20 1.72 1.11 0.01 December 29, 2021 0.76 1.93 0.24 1.88 1.38 -0.28 0.07 0.01 December 30, 2021 0.85 -0.38 1.84 1.48 0.16 -1.85 -0.15 0.01 December 31, 2021 1.56 3.50 -0.91 0.05 2.74 0.76 1.01 0.01 ... ** www September 28, 2022 0.64 -1.75 -0.79 0.71 2.48 -4.98 -0.48 0.02 September 29, 2022 1.98 -1.00 0.58 -1.03 -1.40 1.39 -0.14 0.02 September 30, 2022 -0.51 3.03 -0.23 -0.27 -0.22 2.51 1.20 0.02 EXHIBIT 1: PROJECTED CASH FLOWS FOR THE HERBO EXPANSION PROJECT (* THOUSANDS) Year 1 2 3 4 5 6 7 8 Revenue 5,400 6,210 7,141.5 8,212.725 9,444.634 Expenses 4,860 5,589 6,427.35 7,391.453 EBIT 540 621 714.15 821.273 10,389.097 11,428.007 8,500.17 9,350.187 10,285.206 944.463 1038.91 1,142.801 9 10 12,570.808 13,827.888 15,210.677 11,313.727 12,445.099 13,689.609 1,257.081 1,382.789 1,521.068 Tax (30%) 162 186.3 Net earnings 378 434.7 214.245 499.905 246.382 283.339 574.891 661.124 311.673 727.237 342.84 799.96 377.124 879.957 414.837 967.952 456.32 1,064.747 Depreciation (10%) 200 Total cash flows 578 200 634.7 200 699.905 200 774.891 200 861.124 200 927.237 200 200 200 200 999.96 1,079.957 1,167.952 1,264.747 Note: Herbo Herbo Drugs & Pharmaceuticals; = INR - Indian rupee; US$1 = *79.6613 on September 1, 2022; EBIT = earnings before interest and taxes. Source: Compiled by the authors. EXHIBIT 2: FINANCIALS OF COMPARABLE PUBLIC FIRMS (MILLIONS) Company Dabur India Limited Total assets Non-current liabilities Market capitalization Net income Equity Kerala Ayurveda Limited Cipla Limited 86,877.3 917.8 4,986.3 947,450.5 333.1 944.73 14,329.3 8.9 257,911.6 5,106 726,960.2 29,579.3 Dr. Reddy's Laboratories Torrent Pharmaceuticals Ltd. 249,684 119,541.9 5,365 769,608.6 16,232 31,806.4 520,309.1 9,914.5 58,638.7 112.7 225,135.5 183,362 63,454.2 Debt 5,601.8 614.6 189.2 Source Natural Foods and 193.2 5.1 826.5 24.3 156 22,054 33,864.7 0.4 Herbal Supplements Limited Note: INR Indian rupee; US$1 = *79.6613 on September 1, 2022. Source: ProwessIQ, accessed March 15, 2023. WACC
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Herbo is a pharmaceutical company that is eyeing expansion. The entire decision on expansion is dependant on the accurate estimation of WACC. Using the supporting numbers/information below find Herbos; WACC,
-The Initial cost of expansion is around 6.5 million. which would cover capex and working capital. Projected cash flows are below. Sales are expected to grow by 15% for the first five years and 10% for another five. Beyond the
- To find WACC you need to estimate the cost of debt and equity. To find WACC you will need Beta. As Herbo is an unlisted company you can estimate the beta based on comparable firms numbers found in the numbers below. How does Capital Structure affect WACC? Perform a sensitivity analysis for WACC based on capital structure.
- The most viable source of debt financing for Herbo was bank loans. The RBI has set the latest lending rate at 8.58 per cent. Herbo can also borrow money from a friend/family member they could negotiate a better rate with a 2% premium on top of the 5.9 repurchase agreement set by the RBI. This would result in a cost of debt of 7.9%. The tax rate for Herbo and all comparable firms is projected to be approximately 30% in the coming years.
Should Herbo expand?
Transcribed Image Text:EXHIBIT 3: DAILY RETURNS OF COMPARABLE PUBLIC FIRMS (%)
Date
Source
Dabur India
Limited
Kerala
Ayurveda
Limited
Cipla
Limited
Torrent
Dr. Reddy's Pharmace
Laboratories
Natural
Foods &
Market
RFR
uticals
Herbal
returns
Ltd.
Supplements
Limited
January 1, 2021
-0.01
-1.31
0.81
0.70
-0.27
-2.27
0.77
0.01
January 4, 2021
1.76
0.61
0.68
0.59
-0.01
-0.66
1.55
0.02
January 5, 2021
-0.85
-0.41
-0.60
0.28
0.53
-3.94
0.55
0.01
January 6, 2021
-0.93
-1.74
-0.30
0.03
-0.67
-1.58
-0.28
0.01
December 28, 2021
0.20
-1.60
0.33
0.15
-0.20
1.72
1.11
0.01
December 29, 2021
0.76
1.93
0.24
1.88
1.38
-0.28
0.07
0.01
December 30, 2021
0.85
-0.38
1.84
1.48
0.16
-1.85
-0.15
0.01
December 31, 2021
1.56
3.50
-0.91
0.05
2.74
0.76
1.01
0.01
...
**
www
September 28, 2022
0.64
-1.75
-0.79
0.71
2.48
-4.98
-0.48
0.02
September 29, 2022
1.98
-1.00
0.58
-1.03
-1.40
1.39
-0.14
0.02
September 30, 2022
-0.51
3.03
-0.23
-0.27
-0.22
2.51
1.20
0.02
Transcribed Image Text:EXHIBIT 1: PROJECTED CASH FLOWS FOR THE HERBO EXPANSION PROJECT (* THOUSANDS)
Year
1
2
3
4
5
6
7
8
Revenue
5,400
6,210
7,141.5
8,212.725 9,444.634
Expenses
4,860
5,589
6,427.35
7,391.453
EBIT
540
621
714.15
821.273
10,389.097 11,428.007
8,500.17 9,350.187 10,285.206
944.463
1038.91 1,142.801
9
10
12,570.808 13,827.888 15,210.677
11,313.727 12,445.099 13,689.609
1,257.081 1,382.789
1,521.068
Tax (30%)
162
186.3
Net earnings
378
434.7
214.245
499.905
246.382
283.339
574.891
661.124
311.673
727.237
342.84
799.96
377.124
879.957
414.837
967.952
456.32
1,064.747
Depreciation (10%)
200
Total cash flows
578
200
634.7
200
699.905
200
774.891
200
861.124
200
927.237
200
200
200
200
999.96
1,079.957
1,167.952
1,264.747
Note: Herbo Herbo Drugs & Pharmaceuticals; = INR - Indian rupee; US$1 = *79.6613 on September 1, 2022; EBIT = earnings before interest and taxes.
Source: Compiled by the authors.
EXHIBIT 2: FINANCIALS OF COMPARABLE PUBLIC FIRMS (MILLIONS)
Company
Dabur India Limited
Total assets
Non-current
liabilities
Market
capitalization
Net income
Equity
Kerala Ayurveda Limited
Cipla Limited
86,877.3
917.8
4,986.3
947,450.5
333.1
944.73
14,329.3
8.9
257,911.6
5,106
726,960.2
29,579.3
Dr. Reddy's Laboratories
Torrent Pharmaceuticals Ltd.
249,684
119,541.9
5,365
769,608.6
16,232
31,806.4
520,309.1
9,914.5
58,638.7
112.7
225,135.5
183,362
63,454.2
Debt
5,601.8
614.6
189.2
Source Natural Foods and
193.2
5.1
826.5
24.3
156
22,054
33,864.7
0.4
Herbal Supplements Limited
Note: INR Indian rupee; US$1 = *79.6613 on September 1, 2022.
Source: ProwessIQ, accessed March 15, 2023.
WACC
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education