Sheet1YearBook Value of Shareholder's investment(Rs.)ROE
AchievedProfit after Tax(Rs.)Earnings Retention RateRetained
Earnings(Rs.)Cash Return from Dividends and/or Sale of Stock at
Book ValuePresent Value Factor at 15% discount ratePresent Value of
Cash
Returns(Rs.)1100.0020%20.0050%10.0010.000.878.702110.0020%22.0050%11.0011.000.768.323121.0020%24.2050%12.1012.100.667.964133.1020%26.6250%13.3113.310.577.615146.4120%29.2850%14.6414.640.507.286161.0520%32.2150%16.1116.110.436.967177.1620%35.4350%17.7217.720.386.668194.8720%38.9750%19.4919.490.336.379214.3620%42.8750%21.4421.440.286.0910235.7920%47.1650%23.5823.580.255.83259.370.2564.84Total
value (Rs.)136.62
You have started a business by getting a shareholder's
investment of Rs. 100/-. The business idea is such that you are
likely to get an annual Return on Equity (ROE) of 20% each year for
the next 10 years. The growth of the business is such that you are
likely to retain 50% of your earnings each year in the business.
Your cost of capital/discount rate is 15%. Calculate the total
value of the business given these projections.
Summary SheetMarket Value / Book Value Ratios for Stock based on
Cost of Equity 15%
Years of Existence ROE 10% ROE 20% ROE 30% YearBook Value of
Shareholder's investment(Rs.)ROE AchievedProfit after
Tax(Rs.)Earnings Retention RateRetained Earnings(Rs.)Cash Return
from Dividends and/or Sale of Stock at Book ValuePresent Value
Factor at 15% discount ratePresent Value of Cash Returns(Rs.)30% of
earnings are reinvested 5 years
1100.0010%10.0030%3.007.000.876.0910 years
72.552103.0010%10.3030%3.097.210.765.4515 years
63.113106.0910%10.6130%3.187.430.664.8850% of earnings are
reinvested 5 years 4109.2710%10.9330%3.287.650.574.3710 years
1.355112.5510%11.2630%3.387.880.503.9215 years
6115.9310%11.5930%3.488.110.433.5170% of earnings are reinvested 5
years 7119.4110%11.9430%3.588.360.383.1410 years
8122.9910%12.3030%3.698.610.332.8115 years
9126.6810%12.6730%3.808.870.282.5210130.4810%13.0530%3.919.130.252.2611134.3910%13.4430%4.039.410.212.0212138.4210%13.8430%4.159.690.191.8113142.5810%14.2630%4.289.980.161.6214146.8510%14.6930%4.4110.280.141.4515151.2610%15.1330%4.5410.590.121.27155.800.1218.70Total
value
(Rs.)65.831100.0010%10.0030%3.007.000.876.092103.0010%10.3030%3.097.210.765.453106.0910%10.6130%3.187.430.664.884109.2710%10.9330%3.287.650.574.375112.5510%11.2630%3.387.880.503.926115.9310%11.5930%3.488.110.433.517119.4110%11.9430%3.588.360.383.148122.9910%12.3030%3.698.610.332.819126.6810%12.6730%3.808.870.282.5210130.4810%13.0530%3.919.130.252.26134.390.2533.5979094836Total
value
(Rs.)72.551100.0010%10.0030%3.007.000.876.092103.0010%10.3030%3.097.210.765.453106.0910%10.6130%3.187.430.664.884109.2710%10.9330%3.287.650.574.375112.5510%11.2630%3.387.880.503.92115.930.557.963703715Total
value (Rs.)82.68
Sheet2
Sheet3CASE 1CASE 2Value after 1
Year1000001.08^82.1589249973Value after 10 Year100000Interesr
Rate8%Interest Rate8%Value Today92592.5925925926Value
Today46319.3488084684
Sheet4Monthly SalaryInvestBank15000100000108000112000Earnings
Cost IncuredProfit720000360000360000SAVING 180000COST
LOST220000
Sheet5BENEFIT20020010600,000CostRevenueProfitYearDiscounting
FactorPV of ProfitEPSPrice Earning
RatioCOST30,0001210360,000360,000600,000240,00010.930223,2562416388,800672,000283,20020.865245,0622813419,904752,640332,73630.805267,8393311453,496842,957389,46040.749291,6283910489,776944,112454,33650.697316,471458528,9581,057,405528,44760.648342,413537571,2751,184,294613,01970.603369,500616616,9771,326,409709,43280.561397,780715666,3351,485,578819,24390.522427,304825719,6421,663,847944,206100.485458,1239441,000,000100.49485,1941004PV
of all Cash flows3,824,571if 10000 people are there382
Sheet6
