Tata Power

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OBJECTIVE:
To find β, Value of Share and Weighted Average Cost of Capital (WACC) for TATA POWER CO. LTD. REFERENCE INDEX:
Reference index used for β and other calculations is NSE INDEX. I have collected weekly data from 31/08/2005 to 30/08/2010. COST OF CAPITAL
Cost of capital of the company has been calculated by using Weighted Average Cost of Capital (WACC) by assigning weights to cost of equity and cost of debt. COST OF EQUITY-
CAPM model has been used to calculate the cost of equity (Ke). β (systematic risk) has been calculated using the formula Beta (β) = covariance (market, security)
Variance (market)
Ke=Rf+ β (Rm-Rf)
Where,
Ke=Cost of equity
Rf=risk free rate (8.1%)
Rm=Market return

| SECURITY| MARKET|
AVG. RETURN| 0.55| 0.404|
VARIANCE| 34.5346| 16.936|
COVARIANCE| 17.49273916|
BETA| 1.032885407|
| | |
Annual Return(Rm)| 23.32%|
Risk Free Rate(Rf)| 8.10%|
| | |
CAPM(Ke)| 23.82%|

Analysis: β is >1, the investment in the firm is more risky. COST OF DEBT-
It has been calculated using the formula-
Kd = Interest(1-Tax Rate)
Total Debt

Tax Rate= Tax
PBT

Calculation of WACC has been shown below-
WACC=We*Ke+Wd*Kd

CALCULATION OF WACC|
YEAR| 2006| 2007| 2008| 2009| 2010|
 | BOOK VALUE|
Equity| 10,623.77| 10,623.77| 10,623.77| 10,623.77| 10,623.77| Debt| 2,796.81| 3,675.52| 3,083.35| 5,247.06| 5,872.01| Total| 13,420.58| 14,299.29| 13,707.12| 15,870.83| 16,495.78| We| 0.7916| 0.743| 0.7751| 0.6694| 0.644|

Wd| 0.2084| 0.257| 0.2249| 0.3306| 0.356|
Ke| 0.2382| 0.2382| 0.2382| 0.2382| 0.2382|
WACC| 0.19794| 0.1885| 0.1955| 0.1761| 0.1725|
 | MARKET VALUE|
FACE VALUE|  |  |  |  | 10|
NO. OF SHARES|  |  |  |  | 23.73065|
MARKET VALUE|  |  |  |  | 237.31|
TOTAL|  |  |  |  | 6,109.32|
We|  |  |  |  | 0.0388|
WACC|  |  |  |  | 0.0284|

VALUATION OF...
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