CA Final AFM

1. Financial Policy & Corporate Strategy

2. Risk Management
3. Advanced Capital Budgeting
4. Security Analysis
5. Security Valuation
6. Portfolio Management
7. Securitisation
8. Mutual Funds

9. Derivatives Analysis & Valuation

10. Interest Rate Risk Management
11. Forex
12. International Financial Management
13. Business Valuation
14. Mergers, Acquisitions & Corporate Restructuring
15. Startup Finance

CA Final AFM Marathon Notes CA Mayank Kothari

 Basics - Time Value of Money
1. Simple Interest
2. Compound Amount & Compound Interest
3. Effective Rate of Interest
4. Present Value and Future Value
5. Present Value of Annuity
6. Perpetuity

Basics - Before Risk Management

1. Expected Return
2. Standard Deviation
3. Portfolio Return
4. Portfolio Standard Deviation
5. Correlation Coef cient

Risk Management
1. Con dence Level
2. Level of Signi cance
3. Normal Probability Distribution
4. Mean
5. Standard Deviation
6. Z Table
7. Z Score
8. VAR
CA Final AFM Marathon Notes CA Mayank Kothari
 Advanced Capital Budgeting
Basics
1. Net Present Value (NPV)
2. Probability
3. Dependent & Independent Cash Flows
4. Standard Deviation
5. Coef cient of Variation
6. Hillier’s Model (Double Discounting)
7. In ation
A. Nominal & Real Cash Flows
B. Nominal & Real Discount Rate

Risk Analysis
8. Risk Adjusted Discount Rate (RADR)
9. Certainty Equivalent Coef cient (CEA)
10. Sensitivity Analysis
11. Simulation Analysis
12. Scenario Analysis
13. Joint Probability
14. Decision Tree Analysis

Other Topics
15. Equated Annual Cost
16. Replacement Analysis
17. Optimum Replacement Cycle
18. Project IRR & Equity IRR
19. Adjusted NPV
 Security Analysis
1. Moving Averages
A. Simple Moving Average (SMA)
B. Exponential Moving Average (EMA)
2. Ef cient Market Theory
A. Weak Form
B. Semi Strong Form
C. Strong Form
3. Methods of Evaluating Weak Form
A. Auto / Serial Correlation Test
B. Run Test
C. Filter Rule Test

CA Final AFM Marathon Notes CA Mayank Kothari

 Security Valuation
1. Equity Valuation
a. Walter’s Model
b. Gordon’s Model
c. Multi Period Holding
d. H Model
e. Enterprise Value
f. FCFE & FCFF
g. Right Shares
2. Preference Valuation
a. Redeemable
b. Irredeemable
3. Bond Valuation
a. Structure
b. Types of Bond
c. Current Yield & YTM
d. Present Value of Bond
e. Macaulay’ Duration
f. Modi ed Duration / Volatility
g. Convexity
h. Bond Immunisation
i. Convertible Bonds

CA Final AFM Marathon Notes CA Mayank Kothari

 a. Convertible Bonds
1. Conversion Ratio
2. Conversion Value
3. Conversion Premium
4. Conversion Premium Ratio
5. Straight Value of Bond
6. Minimum Value of Bond
7. % of Downside Risk
8. Conversion Parity Price
9. Favourable Income Differential
10. Premium Payback Period
4. Money Market Instruments
a. Treasury Bills
b. Commecial Paper
c. Certi cate of Deposit
d. Repurchase Agreement
1. Clean Price
2. Dirty Price
3. Call / Notice Money

CA Final AFM Marathon Notes CA Mayank Kothari

 Portfolio Management
1. Return
a. Single Security
b. Portfolio
c. CAPM
d. APT
e. SIM
2. Risk
a. Single Security
b. Portfolio (2 assets)
c. Portfolio (3 assets)
d. SIM
A. Single Security
B. Portfolio
3. Correlation Coef cient
4. Covariance
5. Beta
a. Single Security
A. Regression Analysis
B. Correlation Analysis
b. Portfolio Beta

CA Final AFM Marathon Notes CA Mayank Kothari

 6. Market Lines
a. Capital Market Line (SD)
b. Security Market Line (CAPM)
c. Security Characteristic Line (SIM)
7. Portfolio Evaluation Measures
a. Sharpe’s Ratio
b. Treynor’s Ratio
c. Jensen’s Alpha
8. Optimum Portfolio Theory
a. Calculate Ci = Cut off point
b. Calculate Zi = Relative Investment
c. Calculate Xi = Proportion
9. Portfolio Rebalancing Theory
a. Buy & Hold Policy
b. Constant Ratio / Mix Plan
c. CPPI
10. Minimum Variance Portfolio

CA Final AFM Marathon Notes CA Mayank Kothari

 Mutual Funds
1. Net Assets Value (NAV)
2. Holding Period Return
3. Holding Period Return (Reinvestment)
4. Desired Return by Mutual Fund
5. Expense Ratio
6. Public Offer Price & Redemption Price
7. Front End Load & Back End Load
8. Dividend Equalisation Reserve
9. Tracking Error

CA Final AFM Marathon Notes CA Mayank Kothari

 Derivatives Analysis & Valuation
1. Meaning of Derivatives
2. Cash & Derivatives Market
3. Types of Derivatives
4. Purpose of Derivatives
5. Pricing of Foward & Futures
6. Contango & Backwardation
15
7. Mark to Market Foto

8. Initial and Maintenance Margin

9. Arbitrage Using Forward & Futures
TMP
10. Hedging through Forward & Futures
11. Call & Put Options E XP
12. Option Payoff
13. Intrinsic & Time Value i ME XP
14. Option Valuation
a. Bionmial Model
b. Risk Neutral Approach
c. Black-Scholes Model
XH.fi t

15. Put Call Parity Theory

StTO CotPuofk
16. Portfolio Replicating Model
17. Real Option
a. Growth Option
BUMb. Abandonment Option
BMc. Timing Option
cy.si iiET
D 9T
160 48
18. Swaps 12 12
CA Final AFM Marathon Notes CA Mayank Kothari
 Interest Rate Risk Management
1. Interest Rate Risk
2. Forward Rate Agreement (FRA)
3. Theoretical Forward Rates
4. Interest Rate Futures
5. Conversion Factor and CTD Bond
6. CAP , Floor and Collar Option
7. Interest Rate Swap

Foreign Exchange Exposure &

Risk Management
1. Exchange Rate
2. Base & Counter Currency
3. Bid & Ask Rate
4. Home and Foreign Currency
5. Direct & Indirect Quote
6. Spot & Forward Rate
7. Spread & Swap Points
8. American & European Quote
9. Cross Rates
10. Premium & Discount
11. PIPS
12. Merchant and Interbank Rates
13. Broken Period Forward Rate
 14. Interest Rate Parity Theory (IRPT)
15. Purchasing Power Parity Theory (PPPT)
16. International Fisher Effect
17. Interest Rate Differential
18. Currency Arbitrage
19. Transaction, Translation and Economic
Exposure
20. Internal Hedging
a. Home Currency Invoicing
b. Leading & Lagging
c. Netting
d. Matching
e. Price Variation
f. Asset & Liability Management
21. External Hedging
a. Derivatives
A. Forward
B. Futures
C. Options
D. Swaps
b. Money Market
22. Nostro, Vostro & Loro Account

CA Final AFM Marathon Notes CA Mayank Kothari

 23. Fate of Forward Contract
a. Early Delivery
b. Early Cancellation
c. Early Extension
d. Delivery on Due Date
e. Cancellation on Due Date
f. Extension on Due Date
g. Late Delivery
h. Late Cancellation
i. Late Extension

International Financial Management

1. ADR & GDR - Number & Cost
2. Home Currency Approach
3. Foreign Currency Approach
4. Nominal & Real Cash Flows
5. Adjusted NPV
6. IRPT, PPPT, GGM, CAPM
7. Geared & Ungeared Beta
8. FCFF & FCFE
9. Foreign Company Investing in India
10. Indian Company Investing Abroad

CA Final AFM Marathon Notes CA Mayank Kothari

 Business Valuation

1. Market Value
2. Earnings Capitalisation Method
3. Net Assets Value
4. Chop Shop Approach
5. Discounted Cash Flow Method
6. Perpetual Cash Flow Method
7. Enterprise Value
8. Economic Value Added

CA Final AFM Marathon Notes CA Mayank Kothari

 PVF PVAF

10 8 101

I
1 10 1 10
Year
1 Mt

2 Mt
3 Mt
4 Mt
5 Mt
MRC

FVF FVAF

2 101 8 10

year
1.1 1.1 Mt
1
2 Mt

3 Mt

4 Mt
5 Mt
MRC

CA Final AFM Marathon Notes CA Mayank Kothari

Present Value I 1 I
100 100 100 100 100
of Annuity PUF PUF PUF PUF PUF
PVL
Of
PY 100 PUAF

Present Value 1 I 1

100 100 100 100

of Perpetual CF
PY 10
Return Required

Common Value 5

Addition Subtraction Division Multiplication

50 5 55 50 5 45 50 5 10 5 50 250
30 35 30 25 30 6 30 150
40 45 40 35 40 8 40 200
60 65 60 55 60 12 60 300
10 15 10 5 10 2 10 50

CA Final AFM Marathon Notes CA Mayank Kothari

 2. Risk Management

Con dence Level + Signi cance Level = 100% 90 + 10 = 100

95 + 05 = 100
99 + 01 = 100

Con dence Level (1 Tail) = Z Score

90% = 1.28
95% = 1.65
99% = 2.33

Value At Risk (VAR) = Maximum Expected Loss in value of an investment or

portfolio over a speci c time period, given a certain level of con dence.

VAR10 days = Z score x SD10 days

VAR10 days = Z score x SD1day x 10
VAR10 days = VAR1 day x 10

Standard Deviation (SD)

CA Final AFM Marathon Notes CA Mayank Kothari

 3. Advanced Capital Budgeting

NPV = PV of CIF - PV of COF

Year Cash Flows PVF @ 10% Present Value
1 XXX 0.909 XX
2 XXX 0.826 XX
3 XXX 0.751 XX
XXX

Standard Deviation - Format

Cash Flows Prob. CF x Prob (CF - CF) (CF - CF)Prob.

CF Variance

RADR = Rf + Risk Index ( Ko - Rf)

Year Cash Flows PVF @ RADR Present Value
1 XXX 0.909 XX
2 XXX 0.826 XX
3 XXX 0.751 XX
XXX

Higher the risk of the project, Higher should be the discount rate & vice - versa.

CA Final AFM Marathon Notes CA Mayank Kothari

 Certainty Equivalent Approach
Year UCF CE CCF PVF @ Rf PV

UCF = Uncertain Cash Flows, CE = Certainty Equivalent Coef cient, CCF = Certain Cash Flows

Nominal & Real Cash Flows

UCF = Uncertain Cash Flows, CE = Certainty Equivalent Coef cient, CCF = Certain Cash Flows

CA Final AFM Marathon Notes CA Mayank Kothari

 Sensitivity Analysis

Method - 1 Method - 2
Object : NPV = 0 Object : Impact on NPV (% 🔺 )

Find out what %🔺 in factor will Take xed % like 10%🔺 in Factor
result in NPV = 0 to nd out impact on NPV
(%🔺 in NPV)

Factor with least %🔺 which Factor which leads to highest

leads to NPV = 0 adverse impact on NPV

Is called as
Most Sensitive Factor

Sensitivity 🔺 in Base Value %🔺 in Factor

Or
of Factor Base Value %🔺 in NPV

CA Final AFM Marathon Notes CA Mayank Kothari

 Simulation Analysis
Step 1 : Calculate Cumulative Probability

Step 2 : Generate Range of Random Numbers

Step 3 : Find the Random Numbers given in Q. in Step 2

Step 4 : Use the corresponding Variables Cash Flows, Life of Project etc.

Step 5 : Calculate NPV with data in Step 4

Equated Annual Cost/Bene t

I

CF0 CF1 CF2 CF3 CF4

PV
PVAF
EAC EAC EAC EAC EAC
CA Final AFM Marathon Notes CA Mayank Kothari
 4. Security Analysis

Moving Averages

SMA EMA
Simple Moving Average Exponential Moving Average

Total of Closing Prices

SMA = in a Data
No. of Observations

V
Problem : It gives
equal weight to all
the prices

Solution : Method
which gives more
weight to current
prices as compared
to past prices.

EMA = [Current Price x e] + [Previous EMA x (1-e)]

e = exponent = 2/n+1
n = no. of trading days
 Forms of Market Ef ciency

Weak Semi-Strong Strong

Form Form Form

Past Prices & Volume Data

Public Information

Private(Insider) Information

Auto / Serial Run Test Filter Rule

Correlation Test Test

Correlation Coef cient (r)

If r is closer to Zero =
Market is Weakly Ef cient

If r is signi cantly away

from Zero = Market is
Weakly Inef cient
 5. Security Valuation

Dividend

Rate Yield Payout Ratio

Face Value Market Price Earnings Per Share

CA Final AFM Marathon Notes CA Mayank Kothari

 Value of Share

PE Multiple MP = PE Ratio x EPS

Market Value Market Value

MP =
No. of Shares

Book Value Eq. Capital +

Reserves & Surplus
BV =
No. of Shares

Walter’s Model D + r/ke (E-D)

MP =
ke

Gordon’s Model D
MP =
ke

Gordon’s Growth Model D0 (1+g) D1

MP =
ke - g ke - g

Gordon’s Declining Model D0 (1-g) D1

MP =
ke + g ke + g

Single Period Holding D1 MP1

MP =
(1+ke) (1+ke)
Multi Period Holding PV of Future Dividends +
PV of Terminal Value

H Model D0 (1+gn) D0 H1 (gc - gn)

MP =
k e - gn k e - gn

Earnings Value Method PATe

MP =
Ke
No. of Shares

CA Final AFM Marathon Notes CA Mayank Kothari

 FCFF & FCFE
FCFF : It represents the cash ows available to all of a company's investors, including
both equity and debt holders, after all operating expenses, taxes, and necessary
reinvestments.

FCFE : It represents the cash ows available only to equity shareholders after
accounting for operating expenses, taxes, debt payments, and necessary reinvestments.

Sales 1000
Cost 600
Depreciation 100
Equity
EBIT 300 Debt Fixed Assets
Interest 50
EBT 250
Working Capital
Tax @40% 100
EAT 150
Add: Depreciation 100
Less: Capex 60
Less: 🔺 in Working Capital 30
Less: Debt Repayment 10
Add: New Debt Issued 20
FCFE 170

FCFE = EAT + Depreciation - Capex - 🔺 in WC - Debt Repaid + Debt Issued

= 150 + 100 - 60 - 30 - 10 + 20
= 170

FCFF = EBIT(1-t) + Depreciation - Capex - 🔺 in WC

= 300(1-0.4) + 100 - 60 - 30
= 190

CA Final AFM Marathon Notes CA Mayank Kothari

 Right Shares
Announcement Open Close Allotment Listing
Record Date

Subscription Period Rights Expired

Ex-Right
Date

Cum Right / Rights On Price Ex-Right Price

P0 = 50 S = 40 P1 = 48
N = 4 N 1= 1 N+N1 = 5

200 40 = 240

Ex-Right Price of P0N + SN1 200 + 40 240

48
Share (P1) N + N1 4+1 5

Value of Right Per Share Value of 1 Right

= P0 - P1 = 50-48 = 2 X 4 = 8

P0 - S 50-40 X 4 = 8
= 2
N + N1 5

P1 - S 48-40 X 4 = 8
= 2
N 4

CA Final AFM Marathon Notes CA Mayank Kothari

 Duration of Bonds
Yr CF PVF PV Weight Yr x Weight

MACD = Yr x Weight

PV Duration

Yr CF PVF PV PV x Yr

PV x Yr
MACD =
PV

PV PV x Yr

CA Final AFM Marathon Notes CA Mayank Kothari

 Money Market Instruments

CA Final AFM Marathon Notes CA Mayank Kothari

 Dirty Price & Clean Price

W Clean Price xxx 100

FU 12
R + Accrued Interest xx
1
3 Dirty Price xxx
- Initial Margin 5 x
Adjusted Dirty Price xxx 97.8J
x No. of Securities x
First Leg Amount
+ Interest @ Repo Rate
xxxx
xx
15
Second Leg Amount xxxx 117085

CA Final AFM Marathon Notes CA Mayank Kothari

 09. Derivatives
Arbitrage with Forwards/ Futures

AMP = TMP AMP = TMP

No Arbitrage Arbitrage
Opportunity Opportunity Exist

AMP > TMP AMP < TMP

Forward/ Futures Forward/ Futures

are Overvalued are Undervalued

Sell Buy
Forward/ Futures Forward/ Futures

Buy in Spot Sell in Spot

Borrow in Spot Invest in Spot

At Expiry At Expiry
Close all open positions Close all open positions

Buy Futures, Sell Spot, Repay Borrowings Sell Futures, Buy Spot, Redeem Investment

Enjoy Net Gain Enjoy Net Gain

CA Final AFM Marathon Notes CA Mayank Kothari

 Adjusting Dividend in Spot Rate

Dividend info. in Question is given as

₹ % Rate % Yield
Applied on Face Value Applied on Market Price (S)

Do not Convert Do not Convert Convert

• Use directly in • Dividend = FV x Rate • Calculate Dividend

Forward /Futures Formula • Use this in in ₹ for required
Forward /Futures Formula period and use it
in forwards /
futures formula

Or

• Use yield (y) with

rate of interest (r)
like (r-y)t
• t = time will
ensure the yield
gets converted to
required time.

CA Final AFM Marathon Notes CA Mayank Kothari

 10. Interest Rate Risk Management
Buying Money Selling Money

Take Loan Give Loan

Borrowings Investing

Long Short

Borrower Investor

Wants to Borrow @ Invest @

Lower Rate Higher Rate

The risk to Rates will Rates will

him/her is Rise Fall
This
is a

A Situation
of Loss
How to solve this?

Hedging Forward Futures Options Swaps

Interest FRA IRF Cap, Floors,
Rate Risk Collars
 Forward Rate Agreement (FRA)
0 6 9

FRA Starts FRA Ends

Loan Starts Loan Ends

6 x 9 FRA

Long FRA
N x (RR - FR) x dtm
dy
Settlement =
1+ RR x dtm
dy
Short FRA

N x (FR - RR) x dtm

dy
Settlement =
1+ RR x dtm
Here, dy
N = Notional Principal,

FR = Agreed Forward Rate under FRA,

RR = Reference Rate (Spot Rate),

dtm = days till maturity,

dy = days in a year.

CA Final AFM Marathon Notes CA Mayank Kothari

 Theoretical Forward Rate

Spot Yields
Year Yield
10%
1 One 10% S1
12% 12%
2 Two 12% S2
13% 13% 13%
3 Three 13% S3
14% 14% 14% 14%
4 Four 14% S4

Forward Yields
Year Yield
10%
1 First 10% F1
10% 12%
2 Second 12% F2
10% 12% 13%
3 Third 13% F3
10% 12% 13% 14%
4 Fourth 14% F4

12% 12%

S2 =12% 1.12 x 1.12 = 1.2544

S1 = 10% 1.10 x (1+F2) = 1.2544

10% F2
(1+S2) x (1+S2) = (1+S1) x (1+F2)

(1+S2) 2 = (1+S1) x (1+F2)

Theoretical Forward Rate (TFR)

CA Final AFM Marathon Notes CA Mayank Kothari

 FRA Arbitrage
If

AFR = TFR AFR = TFR

FRA is Correctly Valued

Arbitrage opportunity Arbitrage opportunity

does not exist exist

AFR > TFR AFR < TFR

FRA is Overvalued FRA is Undervalued

Sell FRA (Short) Buy FRA (Long)

Invest @ FRA Borrow @ FRA

Invest @Spot for Previous Years Borrow @Spot for Previous Years

Borrow @ Spot Invest @ Spot

For all the years For all the years

Settle Open Position Settle Open Position

Enjoy Arbitrage Gain ! Enjoy Arbitrage Gain !
 Interest Rate Futures

Interest Rate Futures is exchange traded derivative contract.

Bonds Price
2 IRF Underlying Asset
Interest Rates

3 Theoretical Price of IRF = 100- IR

= 100 - 5 = 100 - 3
= 95 = 97

4 1
Interest Rate α Bonds Price
Interest Rate Futures

5 Interest Rate IRF Action t = M

Risk Bonds Price t = 0 Square Off

Borrower Fal Sell IRF Buy IRF

ise l
R

Investor Fal se Buy IRF Sell IRF

l Ri

CA Final AFM Marathon Notes CA Mayank Kothari

 Cheapest to Deliver Bond (CTD)

IRF Seller

Pro t / Loss = Sell Price - Buy Price

= Conversion x Agreed - Quoted/Given
Factor IRF Price Price

IRF Buyer

Pro t / Loss = Sell Price - Buy Price

= Quoted/Given - Conversion x Agreed
Price Factor IRF Price

Bond which gives maximum pro t on settlement

or minimum loss is called as CTD Bond.

CA Final AFM Marathon Notes CA Mayank Kothari

 Interest Rate Options
Rate
10
Payoff
09

Cap 08
k = 8% 07

06
Year
1 2 3 4 5

Rate
10

Floor 09

k = 8% 08
Payoff
07

06
Year
1 2 3 4 5

Collars Borrower = Risk of Rise in = Buy Cap , Sell Floor

Interest Rate

Investor = Risk of Fall in = Buy Floor , Sell Cap

Interest Rate

CA Final AFM Marathon Notes CA Mayank Kothari

 Interest Rate Swaps

Quality Spread = Difference in Difference in

Fixed Rate Floating Rate

A B
Floating Libor + 1% CD Libor + 3% 2%

Fixed CD 4% 4.5% 0.5%

1.5%

Swap is possible if parties has comparative disadvantage in the

markets they wishes to borrow.

Bank 1 Bank 2

Pays Floating Pays Fixed

Fixed

Floating
I
A B
Pays Floating to Bank Pays Fixed to Bank
Lt 4.5
Receives Floating from B LTI Pays Floating to A Lt
Pays Fixed to B 3.25 Receives Fixed from A 5
F 42 25
075 Lt 3
 0 71
11. Forex

Currency Arbitrage
10
rd 21 50
8
2

2 2

I B
B HighInvest
Lot Born Dism

PREIRD
CA Final AFM Marathon Notes CA Mayank Kothari
 Money Market Hedge
Purpose : No cash ow from one country to
another on Due Date

FC Payable 1000 FC Receivable 10000

FC Receivable 100m FC Payable 10000

FC Invest -> PV of 90000 FC Borrow -> PV of

Receivable Payable 1490000

FC Buy @ Spot FC Sell @ Spot 9000

9000

HC Sell HC Buy
80 latch 48

Borrow HC 280 Invest HC 248

@Due Date
G
@Due Date
Repay HC Borrowing Receive Investment
with Interest Proceeds with Interest

Settle FC Payable Settle FC Payable with

with FC Receivable FC Receivable

CA Final AFM Marathon Notes CA Mayank Kothari

 Forward Contracts

Before
. Due Date On Due Date After Due Date
(Early) (Late)

Delivery 6 1 7

Cancellation 3 2 8

Extension 5 4 9

1
Delivery on Due Date
This is straight forward contract , as you honour
the contract on due date.

2 3
Cancellation Cancellation
on Due Date before Due Date

1. Cancel Original Contract with Opposite Position

a. Buy -> Sell,
b. Sell-> Buy
2. Expiry of both the contracts [Original & Cancellation]
should be same
 4 5

Extension Extension
on Due Date before Due Date

1. Cancel Original Contract with Opposite Position

a. Buy -> Sell,
b. Sell-> Buy
2. Expiry of both the contracts [Original & Cancellation]
should be same
3. Take new forward contract for the new expiry date.

Early
Delivery
a. Pro t on Original Contract xxx
b. Pro t/Loss on Early Delivery xxx
c. Pro t/Loss on Cancellation of Cover Contract xxx
d. Swap Loss/Pro t (a+b+c) xxx
e. Interest on net Out ow/ In ow xx
of Bank due to early delivery
Swap loss/pro t is calculated as the difference between two
new contracts entered into to cancel two old contracts.

CA Final AFM Marathon Notes CA Mayank Kothari

 7 8 9

Late Late Late

Delivery Cancellation Extension

1. Customer is treated as defaulter;

2. Only losses will be recovered, gains will not be shared;
3. Original Contract gets cancelled at the earliest of
a. Spot Rate when customer appeared or
b. Spot Rate of 3rd day after the due date.
4. Bank will recover 3 things from customer
a. Swap Loss
b. Interest on Out ow
c. Cancellation Charges

CA Final AFM Marathon Notes CA Mayank Kothari

 12. IFM

NPV - Home Currency Approach

Yr CF($) Ex. Rate CF(₹) PVF@HCDR PV(₹)

NPV(₹)

NPV - Foreign Currency Approach

Yr CF($) PVF@FCDR PV($)

NPV($)
Spot Rate
NPV(₹)

CA Final AFM Marathon Notes CA Mayank Kothari

 (1+NR) = (1+RR) x (1+IR)

Adjusted NPV = Base NPV + PV of Tax Shield on Debt

10 12 Interest
2
Ke = Rf + Bg(Rm-Rf)

Bg = Bu[1+D/E(1-tax)]

MP = D1/Ke-g

CA Final AFM Marathon Notes CA Mayank Kothari

 13. Business Valuation

1 Market Value
= Market Price x No. of Shares

2 Earnings Capitalisation Method

= PATe/Ke

3 Net Asset Value Method

= Total Assets - Total Liabilities

4 Chop Shop Approach

= Avg of (Segment Values)

5 Discounted Cash Flow Method

= PV of Future Cash Flows

Value of Firm = Discount FCFF @Ko

Less: Debt
Value of Equity = Discount FCFE @Ke

6 Perpetual Cash Flow Method

Value of Firm = FCFF/Ko-g
Less: Debt
Value of Equity = FCFE/Ke-g

CA Final AFM Marathon Notes CA Mayank Kothari

7 Enterprise Value
= MV of Equity
+ MV of Debt
+ MV of Pref.
+ Minority Interest
- Cash & Cash Equivalents

8 Economic Value Added

= NOPAT - Capital Charge
= EBIT(1-tax) - Capital Employed x WACC

CA Final AFM Marathon Notes CA Mayank Kothari

 Basic Operating Structure

Sales 100
Cost 60
EBITDA 40
Depreciation & Amortisation 5
EBIT 35
Interest 5
EBT 30
Tax @ 50% 15
EAT 15
No. Of Shares 3
EPS 5
PE 10
Market Price 50
No. Of Shares 3
Market Value 150
Promoters Holding @ 40% 60
Free Float Holding @ 60% 90

CA Final AFM Marathon Notes CA Mayank Kothari

 Merger
A B C

A B Acquisition
Acquirer Acquiree
Purchaser Vendor
Buyer Seller
Target

Cash Share

MP EPS BY Custom Loss

Acquiter 100 10 500 500
2 125 125
Target
A
T
10 5
1 20 025.1 030 1 41
positive Basis Negative
Exchange Target Acquirer
Ratio Acquirer Target
 Maximum & Minimum Value

A T AT

200 100 450

Maximum Minimum

450-200 100
= 250

Gain or Loss Due to Merger

A T AT

Pre Merger 200 100 450

Post Merger 225 225

Gain 25 125

CA Final AFM Marathon Notes CA Mayank Kothari

Capital Adequacy Ratio = Total Capital / Risky Weighted Assets

Gross NPA Ratio = Gross NPA

Total Advances (Loans)

Net NPA Ratio = Gross NPA - Provision

Total Advances (Loans)

CA Final AFM Marathon Notes CA Mayank Kothari