208 Corporate Finance
Table contd.
Administrative overheads
Kodur 100,000
Coimbatore 50,000
Gulbarga 50,000
Depreciation
Kodur 100,000
Coimbatore 50,000
Gulbarga 40,000 EBIT 10,392,000
Assume that a company is adding capacity. Exhibit 10.4 presents a general format for estimation of ‘truly’
incremental free cash flows.
Post Script: In January 1999, Shaw Wallace & Co, holding 60 percent of the equity capital in DIL
through its subsidiaries, divested its holding through a share purchase agreement in favor of Henkel Spic
India. In November 2000 Henkel acquired more than 90 percent and 95 percent of the fully paid up equity
share capital of The Calcutta Chemical Company and DIL respectively.
Exhibit 10.4 Estimation of free cash flows
Years →Sales- Total market volume
- x company’s market share
- = company’s volume
- – existing capacity
- = incremental tonnage from new capacity
- x price/ton
- = incremental sales
Profits - Price/ton
- – cost/ton
- = pre-tax profit per ton
- x incremental tonnage
- = incremental profit
- – tax @ X percent
- = Incremental NOPAT
Capital expenditure
- Cost of plant/ton capacity
- x tons capacity added
- = incremental expenditure
Incremental FCF = Incremental NOPAT + Depreciation – Capex – ∆ W.C