Module 06 · Exercises

Use tools/fi/valuation.py (dcf_from_drivers, kaveri_base_drivers, kaveri_reference, reverse_dcf, justified_pe, justified_pb, sensitivity) wherever it helps; verify every number before opening the solutions.

Warm-up

E06.01 Define intrinsic value, relative value and book value, and state one situation where each is the most useful.

E06.02 Write the value-driver formula and state its three inputs and its two constraints (g < WACC; g < ROIC).

E06.03 Define: risk-free rate, equity risk premium, beta, cost of debt, WACC; and state the currency-consistency rule.

E06.04 What is the difference between FCFF and FCFE, and which discount rate goes with each?

E06.05 Write the justified forward P/E and justified P/B formulas.

E06.06 Define reverse DCF and variant perception in one sentence each.

E06.07 State the three properties of a good scenario set.

Core

E06.08 A cash flow of ₹12 Cr next year grows at 5% for ever; the discount rate is 12%. Value it. Then compute the value multiple (V/NOPAT) for a company with NOPAT growing 6% at ROIC 18% and WACC 12%, and again at ROIC 12%.

E06.09 Using the value-driver table in 06.1 §2.1, explain to a colleague in three sentences why "growth is good" is only half true.

E06.10 Build a cost of equity for an Indian mid-cap with today's G-sec at 7.07%, ERP 6.0% and beta 1.2; then a WACC with 15% debt at 9.0% pre-tax and a 25.17% tax rate.

E06.11 Four peers have regression betas 1.10, 0.95, 1.25, 1.05 with D/E 0.10, 0.05, 0.30, 0.15; the target has D/E 0.27; tax 25.17%. Compute the bottom-up beta.

E06.12 From the Kaveri drivers (FY27 revenue growth 10%, EBITDA margin 13.3%, D&A 3.4%, capex 3.5%, NWC 25% of revenue vs FY26 NWC ₹365.0 Cr, tax 25.17%), compute FY27 revenue, EBITDA, EBIT, NOPAT, capex, ΔNWC and FCFF.

E06.13 Compute the terminal value at end-FY36 from NOPAT₃₆ ₹332.1 Cr, g 5.5%, RONIC 18%, WACC 12.19%; then the value if FCFF₃₆ (₹275.6 Cr) were simply grown at 5.5% — and explain the difference.

E06.14 Discount the ten FCFFs (108.5, 114.2, 124.5, 132.0, 157.3, 179.3, 202.5, 226.5, 251.1, 275.6) at 12.19% with the mid-year convention, add the PV of a ₹3,638.7 Cr terminal value, and complete the bridge (net debt 140.5, leases 18.2, 6.07 Cr shares).

E06.15 Compute the implied exit EV/EBITDA of the reference terminal value (FY36 EBITDA ₹568.5 Cr) and the value per share if a 10x exit multiple were used instead.

E06.16 Recompute the probability-weighted value with weights 40/40/20 (bear/base/bull) and the expected return from ₹300.

E06.17 Compute Kaveri's justified forward P/E and P/B with ROE 15%, \(k_e\) 12.5%, g 5%. Compare with the trailing P/E at ₹390 (25.9x) and explain the gap.

E06.18 Value Kaveri at the peer-median P/E (34.7x) and the peer-median EV/EBITDA (20.8x). Reconcile with the DCF's ₹320 in three sentences.

E06.19 Using reverse_dcf, solve for the implied uniform growth at ₹300 and at ₹450 (base margins). Interpret.

E06.20 A bank trades at 3.0x book with \(k_e\) 13% and long-run growth 7%. Compute the implied RoE; the bank earns 16%. Write the variant perception (either direction) in the required form.

E06.21 Residual income: book value ₹2,000 Cr, RoE 17%, \(k_e\) 12.5%, g 6%. Value the equity and the P/B.

E06.22 SOTP: a holdco owns 40% of a listed company (mcap ₹10,000 Cr) and 100% of an unlisted business worth ₹1,500 Cr on DCF; net cash ₹200 Cr; holdco costs ₹10 Cr/yr; \(k_e\) 12%; 8 Cr shares. Compute gross NAV per share and the value at 35% and 55% discounts on the listed stake.

E06.23 Merton: asset value ₹800 Cr, asset vol 35%, debt face ₹600 Cr due in 2 years, rf 7%. Compute equity value and the risk-neutral default probability (use the code in 06.7 §5.1). What happens to equity if asset vol rises to 50%?

E06.24 From ₹260, compute Kaveri's expected return and upside/downside ratio on the reference scenarios; then with a fourth scenario — a 10% chance of ₹80 (governance jump) — rescaling the others proportionally.

E06.25 Run the Monte-Carlo sketch in 06.8 §4 with correlated growth and margin draws (e.g., margin shift = 0.5 × growth-scale deviation + noise). Report P10/P50/P90 and P(value < 390), and compare with the independent-draw version.

Stretch

E06.26 Explain, with the Gordon model, why a company's value can fall when its growth accelerates.

E06.27 Design a two-stage DCF for a company with 25% growth for five years fading linearly to 6% by year ten, ROIC 30% fading to 15%, WACC 11%. Implement it with dcf_from_drivers (choose a base) and report TV share of EV.

E06.28 Write the fifteen DCF mistakes as a one-page checklist you would run on a broker's model, with the question that detects each.

E06.29 For the NSE IPO (September 2026), write the price-implied expectations you would want to back out before deciding whether to subscribe, and the data you would need.

Real-world task

E06.30 Pick a listed Indian non-financial company. Using fi.data.fetch_statements, build a driver-based DCF (dcf_from_drivers) with a documented base case, run WACC × g and growth × margin grids, three scenarios with probabilities, and a reverse DCF at the current price. Write the one-table-and-three-sentences output of 06.4 §5.

E06.31 For a listed Indian bank or NBFC, compute the implied RoE from its P/B and compare with its actual and five-year average RoE. State the expectation that matters.