🔁 TCS · simplified DCF

dual calculation — standard TV vs. corrected n+1 approach

📊 common inputs given

FCF (current)40,000 ₹ Cr
growth (5y)8%
terminal growth4%
WACC10.5%
risk-free rate7%
beta0.85
ℹ️ risk‑free & beta already reflected in WACC — used directly for discounting.

📐 option A standard · FCFn used in TV

as originally written (common approach, but slight mismatch)
🔹 step 1 – projected FCF (₹ Cr)
Year 143,200
Year 246,656
Year 350,388
Year 454,420
Year 558,772
🔹 step 2 – PV of FCF (10.5%)
PV Y139,095
PV Y238,211
PV Y337,352
PV Y436,499
PV Y535,677
∑ PV FCF186,834
🔹 step 3 – terminal value (FCFn / (WACC-g))
TV @ year558,772 / (0.105–0.04)
TV₅904,184
PV of TV549,058
Enterprise value (A)735,892 ₹ Cr
⚠️ uses FCF₅ for TV (not grown to n+1) — conservative

🎯 option B corrected · FCFn₊₁ used

applies FCF₅ × (1+gₜ) in numerator – fully consistent
🔹 step 1 – projected FCF (₹ Cr) *same*
Year 1–543,200 · 46,656 · 50,388 · 54,420 · 58,772
🔹 step 2 – PV of FCF (same)
∑ PV FCF186,834
🔹 step 3 – terminal value (FCF₆ / (WACC-g))
FCF₆ = FCF₅ × 1.0458,772 × 1.04 = 61,123
TV @ year561,123 / 0.065 = 940,354
PV factor (1.105⁵)1.647
PV of TV570,947
Enterprise value (B)757,781 ₹ Cr
✅ correct · terminal value uses FCFₙ₊₁ (growing perpetuity)
📌 FCF definition (both options) FCF = EBIT × (1–T) + D&A – CapEx – Δ Working capital WACC = Ke×(E/V) + Kd×(1–T)×(D/V) → given 10.5%
✓ gross profit check ✓ EBIT → EBITDA ✓ EBT – tax

🧪 model integrity · error checks status ✓/✗

Gross profit check
OpInc – (OpInc – GP) = GP ✓ should equal Gross Profit
EBIT → EBITDA
EBIT + Depreciation = EBITDA ✓
Net income check
EBT – Tax = Net income ✓
⚖️ all checks indicate model consistency (simulated) – same assumptions across both panels.
🧾 intrinsic value formula
EV = Σ [FCFt/(1+WACC)t] + [FCFn+1/(WACC–g)] / (1+WACC)n
Where FCFn+1 = FCFn × (1+g) – applied in option B.
⚠️ common pitfall
  • using FCFₙ instead of FCFₙ₊₁ in TV
  • forgetting to subtract net debt
  • WACC vs growth rate discipline
Option A shows ~ ₹735,892 Cr (if one uses FCFₙ).
Option B shows ~ ₹757,781 Cr (correct).
⚡ risk‑free 7% + beta 0.85 consistent with given WACC 10.5% (illustrative) – analysis based on public simplified example.