1 Normal 1 No Spac... Heading 1 Heading 2 Font Paragraph Styles 1. Cost of Capital analysis and Firm Valuation - NTPC Ltd. Is the firm with 5 years of data. Analysis should cover - 1. Calculate cost of equity (using CAPM assuming a risk premium of 5%). For Risk-free rate take T-bill rate (364 days) from RBI website. Calculate Beta of stock by taking Nifty 50 as market index (Use last year data for the same). 2. Calculate cost of debt - (taking tax advantage of interest - effective tax rate from the BS) 3. Calculate WACC for the company. This WACC is nothing but the R (discount rate of your firm). 4. Find the firm valuation using RWAcc. Using constant growth model. 5. To apply the constant growth rate model (to find the intrinsic worth of equity), the variables required are - market value of debt outstanding, equity shares outstanding, (EBIT - Taxes = EAT + Depreciation), growth rate in Net Cash flows for the next 5 years (this is a differential growth rate), Perpetual growth rate in cash flow after 5 years assumed to be 2%. Calculate the PV of all cash flows and this is the total value of the firm. To find the value of equity in this total value of firm, deduct the value of debt from total value. To find the equity price of the company, divide the equity value with the number of equity shares outstanding. Then you will get expected equity price per share. If the actual value in the market is greater than the calculated price, the stock is overvalued or vice-versa