In this project, you will be required to apply the concepts that you have learnt in the course to arrive at real-world solutions. The project has been divided into multiple smaller questions in order to test your ability to think all the steps and attention to detail.

In this project, you would represent a business magnate who has decided to expand his growing portfolio of companies. Already a key player in the automotive industry, now you're planning to step into EVs or all-electric vehicles. For this next stage of your plan, you are looking for battery manufacturers who might help you in establishing the production facility.

One of your friends told you about the Green Energy Company. It is a small business that has been in the battery manufacturing business for the past 20 years. In this project, you would be evaluating the company for its worth and taking a decision on whether or not you should buy it. In another case, you will also be evaluating a few projects to decide on the next investment for the company. Finally, you will take an investor's perspective to decide if the current performance of the company makes it a lucrative investment opportunity or not.

Below is the balance sheet of Green Energy Company.

Question 3

Now, consider the original case of when you were planning to buy the company. You would be able to utilise all the company resources after acquiring the company. So, you ask your team to evaluate the company and the possible changes that can be done to increase sales. After a week, your team present you with these suggestions and assumptions that will be used for valuing the company.

As a conservative survey, the researchers have only assumed a growth scenario for the next 4 years. From year 5 onwards, the values remain constant

Revamping the machinery to increase the output would result in a 10% reduction in production cost, along with a 5% reduction in administrative costs. This would cost Rs 2000 Lakhs which will be depreciated over 4 years

This revamp would help in increasing the revenue by 10% each year for the next 4 years and then it becomes a constant

The downside to the revamp would be an increase in the time it takes for the product to be ready. Although it does take only a few extra minutes, the quantity of the product translates to a roughly 5% increase in the working operating capital

The cost of goods and tax rate would be a constant percentage of the sales revenue

The discount rate has been assumed to be 10%

Utilise these assumptions to calculate:

The free cash flows for the Years 0-5 (10 marks)

The terminal value (2 marks)

* The relevant data of the income sheet has been attached here for your reference.

Below is the income statement of Green Energy Company

Income Statement - Green Energy Company

D B Current Assets 1 5 5 Total 9 Non-Current Assets Assets (in Lakhs) Cash Accounts receievables Supplies Other current assets Long-term receivables Other assets Plant and equipment BALANCE SHEET 3042 24701 18958 1272 40790 10332 247101 Current Liabilities Non-Current liabilities Equity 346196 Total Liabilities (in Lakhs) Loans payable Accounts payable Taxes payable Long term debt Deferred income tax liabilities Other long term obligations Stocks Other income 17258 37268 2612 40810 27244 22476 191794 6734 346196 B INCOME STATEMENT (in Lakhs) A 1 2 Revenue 3 Cost of goods sold 4 Production 5 Administrative expenses 6 Depreciation 7 Operating income 8 Interest 9 Tax 10 Net Income 11 12 13 290212 -191586 -36682 -11480 -18745 31719 -766 -10113 20840 D B Current Assets 1 5 5 Total 9 Non-Current Assets Assets (in Lakhs) Cash Accounts receievables Supplies Other current assets Long-term receivables Other assets Plant and equipment BALANCE SHEET 3042 24701 18958 1272 40790 10332 247101 Current Liabilities Non-Current liabilities Equity 346196 Total Liabilities (in Lakhs) Loans payable Accounts payable Taxes payable Long term debt Deferred income tax liabilities Other long term obligations Stocks Other income 17258 37268 2612 40810 27244 22476 191794 6734 346196 B INCOME STATEMENT (in Lakhs) A 1 2 Revenue 3 Cost of goods sold 4 Production 5 Administrative expenses 6 Depreciation 7 Operating income 8 Interest 9 Tax 10 Net Income 11 12 13 290212 -191586 -36682 -11480 -18745 31719 -766 -10113 20840