Reference no: EM133101991

Question - You will now help Smith perform the valuation of Patanjali. Use the following assumptions for your calculations from the years 2018 to 2022. Remember, you are performing the valuation at the end of 2017.

Smith has given you the following assumptions based to work with.

Assumptions:

1. Revenue Growth = 50%

2. EBITDA Margin = 20%

3. D&A (as % of Capex) = 40%

4. Capex (as % of Revenue) = 2%

5. Discount rate = 12%

6. Tax rate = 30%

Use the 2017 revenue value given in Exhibit 2: 10,000 cr.

Additional simplifying assumptions:

1. The company has negligible debt. Debt can be considered as 0.

2. Working capital remains constant throughout. So there is no change in net working capital.

3. The free cash flows from 2023 onwards are constant and equal to the 2022 value. They continue forever.

Smith wants to calculate the enterprise value of Patanjali using the DCF method. Help him calculate it step by step in the following questions.

A: Calculate the free cash flows of Patanjali from 2018 to 2022.

B: Calculate the terminal value from 2023 onwards, assuming the company will generate constant cash flows which are equal to the 2022 cash flow.

C: Use the free cash flows and the terminal value calculated in the above question and calculate the enterprise value of Patanjali.