MASTER OF BUSINESS ADMINISTRATION

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Student ID Number: Cohort: September 2007

Assignment: Business and Financial Environment 2

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Assignment: Business and Financial Environment 2
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 Kingston University Business School

Business and Financial Environment II

Assignment

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Moscow, 2008

1
 CONTENTS

Question 1 3
The significance of the project “New Moscow Metro line from Yugo-Zapadnaya to
Novoperedelkino”
Question 2 3
Estimation of the Waited Average Cost of Capital (WACC) for Balfour Beatty Plc
(UK) and JSC SISTEMA-HALS (Rus)
Question 3 6
Reflection of the value of Balfour Beatty Plc (UK) and JSC SISTEMA-HALS (Rus)
equity across the share prices
Question 4 8
“Off balance sheet”as the financial instrument
Referance 9
Appendixes 10

Question 1

2
The significance of the project “New Moscow Metro line from Yugo-Zapadnaya to
Novoperedelkino”

Having analyzed the Cash flow and made all calculations (Appendix 1) we need to mention that:
 Net present Value (NPV) – 3032 RUR
 internal rate of return (IRR) – 26,99 %
The positive NPV and the IRR generated by the Project means that this project is profitable and
can be realized.
Moreover, IRR generated by the Project, exceeded the risk premium (18%) almost one and half
times. This project could generate high Cash flow at media (advertising), service and food industries
(observed the “business centres&Retail units”). Growing population of the city in the dormitory
suburbs provides the long-term perspective and great potential for cash generation. This project could
be attractive for both: the financial and prestige of Capital reasons.

Question 2
Estimation of the Waited Average Cost of Capital (WACC) for Balfour Beatty Plc
(UK) and JSC SISTEMA-HALS (Rus)

The range of calculations of WACC was presented in Appendix 2 using Dividend yield (DY)
and CAPM methods. The aggregate results present in Table1.
Table 1
Balfour Beatty Plc (UK) JSC SISTEMA-HALS (Rus)
Cost of equity:
Dividend Yield (DY) 15.04% -
CAPM 8.46% 19.26%
WACC:
Dividend Yield (DY) 14.97% -
CAPM 8.53% 19.26%

Cost of capital for companies in contraction sector - is vitally important ratio. It can be seen that
Balfour Beatty Plc (BB) (UK) and JSC SISTEMA-HALS (SH) (Rus) cost of capital are different
despite that companies operate in the same sector.
Cost of capital - is an important financial instrument for understanding the real situation of the
company in following reasons:
 Opportunities to achieve positive financial results in long-term projects;
 Difficulties in collecting funds for further investment;

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  Achieving a competitive advantage from the standpoint the cost of operation.
Having observed the results of Cost of equity calculations, we need to mention, that for Russian
company (SH) the calculation via Dividend yield (DY) method does not seem possible, because
company does not pay dividends1.
Also we need to highlight that for the Russian construction market in a whole such situation was
normal. As an assumption could provide the reason that in Russian biggest developing constructions
market (Market growth 10-14%, but construction materials market’ growth could reach – 40%) 2 the
companies can hardly cover the growing demand. In this situation company constantly have the
requirements for additional investment. Observing the financial reports, we could say that the company
invests both: the current net income (Appendix 4) and proceeds from issuance of the additional
common stock.
Analyzing the Russian current stock market, we could characterize it as new (since 1997),
concentrated market, and mainly based on the majority of the transactions with raw material
companies3.
For the construction market we see that several major companies began to quote on the Russian
Stock Exchange since 2007 year4 which shows the poor and unrepresentative Data for forecasting.
Having observed the calculations of SH, we see that the CAPM and WACC figures are equal. It
could be explained by the next factors:
1) insignificant rate of borrowing 0.02% and
2) cost of borrowing closed to cost of equity.

Analyzed the figures in Table 1, we see that WACC of BB, estimated by DY method, is higher
than the WACC based on the CAPM method. It could depend on the increasing of the expected
dividend due to the growth rate (from 5.0% 2001 to 12.3% 20065).
Comparing WACC and Cost of equity, we could see the similar figures. It may be explained as
the low rate of borrowing equal 2%6. Although the Cost of equity usually is higher than Cost of
borrowing7, that’s why it is more rational if WACC is lower than Cost of equity.
Having analyzed two methods of WACC calculations, we suggest that results based on the
CAPM method are more reliable, which can provide investors with market determined and risk-
adjusted discount rate8.

1
Peshkova B. (Moscow 2007-2008) Lecture materials
2
“Russian market of the construction materials” Independent marketing agensy ABARUS Market Research (Moscow 2006)
3
oil, gas, metal and coal
4
Peshkova B. (Moscow February 2008) Consultation for the assignment
5
Balfour Beatty Plc Annual report 2001-2006
6
Balfour Beatty Plc Annual report 2001-2006
7
the high risks are attributed to priority the return of investment
8
A.Carreras and S.Archbold Manual (KingstonLondon 2006) «Business and Financial Environment II»

4
 Also we notice that WACC (DY) method (using for the UK Company) has some weaknesses.
Firstly, using the unequal currencies could give the different results in Cost of capital’ notation.
Moreover, when the potential growth forecasting could be made on the past company
performance without estimating future company perspectives is not quote reliable.
Furthermore, we suggest that for different situations different methods could be used (CAPM
or DY). For example, if the company needs to increase their Value – it doesn’t need to use WACC
(CAPM), because NPV will be higher (after discounted cash flow).
At last, there is a danger of a very subjective assumption in calculations of future growth of
dividends rate. WACC does not say anything about the risk of individual projects. Each project must
be considered separately, so the risk is to be added.
CAPM is better method for calculating the Cost of capital. It includes both: free risk and
systemic risk factors in accounting9. That’s why WACC is appropriate for project and firm valuation,
but in contradiction, it is not really good for investment decision-making10.
Finally, we need to stress that the results calculated by both methods show that the WACC of
BB has a lower Cost of capital than SH. It could be explained by the next factors:
- Russian market has an emerging business environment (different levels of risk-free rate);
- Higher level of risk for the investments in Russia (different level of market returns);
- Higher expectations of the shareholders linked with higher risk in Russia;
- Greater inflation of Russian currency in comparison with GBP (different cost of borrowed
capital).

Question 3
Reflection of the value of Balfour Beatty Plc (UK) and JSC SISTEMA-HALS
(Russ) equity across the share prices

9
Based on the lecture materials of Peshkova B. (Moscow 2007-2008)
10
“On the Applicability of WACC for Investment Decisions” Prof. Dr. Jaime Sabal (December 2004)

5
 Having analyzed all the relevant financial information about BB (UK) and SH (Rus) and
operations, which had evaluated the market value of these companies, the final results were presented
in the Table 2.
Table 2
Share value ($)
# Method for share value estimation Balfour Beatty Plc (UK), GBP JSC SISTEMA-HALS (Rus), $
1 Net Assets per share 0,9 65,23
2 P/E Multiple of earnings method    
  - Past earnings 4,25 108,88
  - Next Years Earnings (Forcast) 4,58 336,82

3 NPV of Future Cash Flows 3,11 21,62

  Share value range 0,9 - 4,58 21,62 - 336,82

  Share price (2006 y/e) 4,43 262,47

Having analyzed the calculations, we see that the different methods of share price’ estimation
give the unequal ratios, that’s why the appropriate results reflects on the companies’ value of equity
(difference between them).
Observing the evaluation of the BB (UK)) , we need to intimate that the company has the share
price equal 4.43 at the end 2006, which is highest figure in the share value range.
Analyzing the different methods of calculation, we could notice that the Net Assets method
(this method allows to evaluate the value of the company covered by its assets) gives the results, which
are closer to the lower level of ranges with high deviation from the current share price. This could be
characterized by estimating only the book value assets without including the current and future
performance’ value of the company. As a result, this method underestimates the real market value.
The value of share, estimated by past earning method equal 4.25 and shows the past value of
the company. But also it reflects the current value of the company and based on the real feasible
expectations of the investors.
Observing the calculations, based on next year earning, we could notice that the rate equal 4.58
looks very realistic and closed to the market share price. Moreover, we need to mention that the low
difference between current and forecasting methods could be explained by the mutual UK market with
lower rates of growth and weak future expectation of investors at last.
Finally, we need to mention that the real market value of the company reflects on only one rate
- share price. Analyzing the current share price of the BB (UK), we could say that this figure stays into
the share value range, which shows the high level of ensure reliability.
Analyzing the the evaluation of the SH (Rus) we need to intimate that the share price is higher
than the same at BB (UK). The values estimated by Net assets method and NPV of future cash flow
are lower than the real company share price and it underestimates the real market value. Despite the

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high demand on the construction segment, market investors are very careful in matter of their
investment in emerging markets. It depends on the high risk, which follows from the difficult Russian
market situation. The market is characterized by the opacity of data, where it is quite difficult to get
any information. The complicated structure of the market together with the dammed market of the
capital, undeveloped stock institutes and the people with the outdate outlook (do not buying the shares
– do not have the assurance) - made the market unstable and unformed.
Also, calculating the rates via past earning methods, we could notice that it equals 108.88, but
does not reflect the current value of SH (Rus) company. It could reflect the past value of the company.
The value of shares, based on forecasting plan, is much higher than market value. The share
price in this method equals 336.82, when the current share price equals 262.47 (at the end of 2006).
Having analyzed the current situation on the construction sector, we mention that it has the fast
growing tendency. Having the range of risks, this market has the great potential as well. This fact
opens the large area of potential growth in the future investments. The excess of liabilities may reflect
the future growth in the share prices of SH (Rus) and the active company development: share issue the
high numbers for the market, for getting the high quantity of cash flows, for the next investing. All this
factors show that the company is going to get the stable position on the construction market, stately
improving the high profitability and the corporate governance.
But also we need to stress that calculation results can be hardly estimated with strong level of
confidence because of high expectation level (growth rates). These results have a lot of assumptions.
As a conclusion, we need to point out that all these methods are relevant and, together with the
current share price placed into the share value range, can give the quite relevant estimation. But there
is no one method, which can be viewed as the “single”. To make the correct financial decisions the
both methods should be used.

Question 4
What do you understand by "off balance sheet" financial instruments? To what extent are there
fears that failure of these securities may deepen the US&UK credit crunch which arose from the

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sub-prime lending crisis in August 2007. What impact has the consequent reduce availability of
large scale funds impacted on takeover activity in Russia?

«Off-balance-sheet» usually means an asset or debt or financing activity not on the company's
balance sheet. Companies have used off-balance-sheet entities responsibly and irresponsibly for some
time. These separate legal entities were permissible under generally accepted accounting principles
(GAAP) and tax laws so that companies could finance business ventures by transferring the risk of
these ventures from the parent to the off-balance-sheet subsidiary. This fact was also helpful to
investors who did not want to invest in these other ventures11.
Off balance sheet could be used as an instrument of hidden debt financing company, thus
distorting (overstate), the real rates of cash flow the company. If it opened, the investors are beginning
to lose confidence in the company, suspecting its presence in the servicing obligations of credits and
loans, which results in lower cost of the company's shares. This fact was the main reason of the credit
crisis in US & UK in August 2007.
Observing the situation with the takeover activity in Russia could mention the next fact:
- Risk buying the “Soap Bubble” instead the stable company;
- And as the example the situation with the Ukos Company – when the government marked
down the company value especially for the further takeover and getting the high benefits.
The loss of confidence in financial statements is an attack on one of the core elements of investment
decision-making. To quote Johnny Cochran, "If the statements aren't true, what will we do?"12

Reference

1. A.Carreras, S.Archbold Manual (Kingston London 2006) “Business and Financial

Environment 2”
11
http://www.investopedia.com/articles/analyst/022002.asp
12
http://www.investopedia.com/articles/analyst/022002.asp

8
2. Group work (ID numbers: 0747407, 0747380, 0747368, 0747378, 0747372, 0748400)
3. Prof. Dr. Jaime Sabal (December 2004) “On the Applicability of WACC for Investment
Decisions”
4. Peshkova B. (Moscow 2007-2008) Lecture materials
5. Market Research Independent marketing agensy ABARUS (Moscow 2006) “Russian market of
the construction materials”
6. Peshkova B. (Moscow February 2008) Consultation for the assignment
7. Balfour Beatty Plc Annual report 2004-2006
8. Balfour Beatty Plc Annual report 2001-2003
9. http://www.balfourbeatty.com/
10. http://www.sistema-hals.ru/
11. http://www.investopedia.com/articles/analyst/022002.asp
12. http://www.ecb.int/stats/money/long/html/index.en.html/
13. www.uk.reauters.com
14. www.sbrf.ru
15. JSC SISTEMA-HALS (Rus) Annual report 2006
16. JSC SISTEMA-HALS (Rus) Annual report 2005

9
Appendix 1

The searching and calculations for this assignment have been made by the group of students:
ID numbers: 0747407, 0747380, 0747368, 0747378, 0747372, 0748400

    Years
    Total y0 y1 y2 y3 y4 y5 y6 y7 y8 y9 y10 y11
      0 1 2 3 4 5 6 7 8 9 10 11
Inflows                            
Sales the tickets, RUR m   18 426 - - 500 1 100 1 700 1 802 1 910 2 025 2 146 2 275 2 411 2 556
advertising, RUR m   1 734 - - 50 100 160 170 180 191 202 214 227 241
business center, RUR m   11 142 - - 250 560 840 941 1 054 1 180 1 322 1 480 1 658 1 857
government payment, RUR m   20 000 - - - - - 10 000 - - - - 10 000 -
allowances sum from the constractions (24%)   1 338 - 43 85 141 192 175 140 112 90 72 57 230
    -                        
TOTAL INFLOWS:   52 639 - 43 885 1 901 2 892 13 088 3 284 3 508 3 760 4 041 14 354 4 884
                             
Outflows                            
construction of Metro, RUR m   (8 700) (1 800) (2 100) (2 300) (2 500) - - - - - - - -
construction of business centres&retail units, RUR m   (2 450) - - (750) (800) (900) - - - - - - -
Metro Maintenance&Runing costs, RUR m   (768) - - (10) (20) (60) (67) (75) (84) (94) (106) (118) (133)
Administration, RUR m   (7 629) - - (100) (210) (640) (704) (774) (852) (937) (1 031) (1 134) (1 247)
Other Costs, RUR m   (727) - - (10) (30) (80) (82) (83) (85) (87) (88) (90) (92)
opp.cost, RUR m   (80) (80) - - - - - - - - - - -
tax from operating cash inflows, RUR m   (9 104) - - - - - (2 413) (904) (978) (1 060) (1 149) (1 247) (1 353)
    -   - - - - - - - - - - -
    -                        
TOTAL OUTFLOWS:   (29 458) (1 880) (2 100) (3 170) (3 560) (1 680) (3 266) (1 837) (1 999) (2 178) (2 374) (2 589) (2 825)
                             
TOTAL CASH FLOW FROM THE PROJECT:   23 181 (1 880) (2 057) (2 285) (1 659) 1 212 9 822 1 447 1 508 1 582 1 667 11 765 2 058
                             
cost of capital including risk premium, % 18%                          
Discounting factor     1,000 0,847 0,718 0,609 0,516 0,437 0,370 0,314 0,266 0,225 0,191 0,162
                             
NPV = sum of DISCOUNTED CASH FLOWS (PV):   3 032 (1 880) (1 743) (1 641) (1 010) 625 4 293 536 473 421 376 2 248 333

IRR:   26,99%
The following assumptions have been done:
 The taxable amount consists of operating surplus and construction cost reduced
considering capital allowance
 Net present value is sum of all the datas in discounted cash flow
 IRR is calculated as interpolation from +ve and -ve NPV (until the value appears
as zero)
 Discounting future cash flow was by the discount rate equal the cost of capital
including risk premium - 18%.

1
Appendix 2

Assumptions:
• Equal risk levels for the past and future project company
• Constant cost of capital except for the issuance of new shares
• All investors have equal and full access to information about the company's past and future
• Past dividend growth extrapolated in future
• Ignoring Tax
• All investors have capital equal value
• Ignored the costs of issued securities (issue cost)
• Ignored gains and losses associated with fluctuations in stock

1. Calculation the cost of equity

1.1 Dividend Yield method

1) Calculation of the dividend growth for Balfour Beatty Plc (UK) and JSC SISTEMA-
HALS (Rus)

Balfour Beatty Plс (UK) Expectation 2006 2005 2004 2003 2002 2001
Div/per share13 (GBP) 9.1 8.1 6.6 6.0 5.4 5.0
Growth 12.72% 12.3% 22.7% 10% 11% 8%

13
Balfour Beatty Plс (UK) Annual Report 2001-2006

2
 Analyzing the trend of dividend per share could mention the high level of fluctuation in
dividend growth, so it does not seems reliable to make decision, based on trend support. That is
why we used the calculation for the rate of compound growth14:
5.0*(1+g)5 = 9.1
(1+g)5 = 9.1/5.0
g = 5√1.82 - 1
g = 12.72 %

Assumption:
For JSC SISTEMA-HALS (Rus) could not make the calculation via Dividend yield (DY)
method does not seem possible, because the Russian companies do not pay dividends, the shares
are bought only for earnings15.

2) Calculation of the cost of equity

Ke = Div (1+g)/MV+g
Balfour Beatty Plc (UK)
Div/per share16 = 9.1 p
g = 12.72%
MV/per share = 443.0 p
Ke = 9.1*(1+0.1272)/443+0.1272 = 15.04%

14
A.Carreras and S.Archbold Manual “Business and Financial Environment 2” September 2006
15
Peshkova B. (Moscow 2007-2008) Lecture materials
16
Balfour Beatty Plc (UK) Annual Report 2006 page 62

3
1.2. CAPM method
Assumptions:
 An efficient capital market
 Gomogenny market. All investors assess the risk of the project equally
 All investors can attract unlimited financial resources at the same level and rate free
(RF)
 Ignoring Tax
 Expected market return (Rm) for UK = 8%, Russia = 15%17

Ke =Rf+B(Rm-Rf)
Balfour Beatty Plc (UK)
Risk free rate (Rf) for UK market18 - 4.94%
Beta (B) coefficient19 - 1.15
Return on the market (Rm) – 8%
(Rm – Rf) – 3.06%
Ke = 4.94%+ 1.15*3.06%=8.46%

JSC SISTEMA-HALS (Rus)

Risk free rate (Rf) for Russian market20 - 6.49%
Beta (B) coefficient - 1.5
Assumption:
- Based on the lecture materials of Sclayrova E. (Moscow 2008) need to mention that
difference between long-term bonds of countries could use for the calculation of beta
(B). Therefore rf UK = 4.94%, rf Rus = 6.49% the difference = 4.94/6.49=76%. This
means that for the Russia could expect the next calculation for beta: beta
UK=1.15/beta Russia=76% therefore beta Rus could accept equal 1.5.

Return on the market (Rm) – 15%

(Rm – Rf) – 8.51%
Ke = 6.49%+1.5*8.51%=19.26%

17
Peshkova B. (Moscow 2007-2008) Lecture materials
18
http://www.ecb.int/stats/money/long/html/index.en.html/
19
www.uk.reauters.com
20
www.sbrf.ru

4
2. Calculation WACC
WACC = (Ke *Ve +K ne*Vne+ Kd*Vd) / (Ve+Vne+Vd)
Assumption:
- We decide to exclude the value of non-equity shares in following calculations in case
of its absence for aims of dividend payment and, so it is not take a part in forming
value of non-equity.

This means that the formula will has the next look:
WACC = (Ke*Ve+KD*Vd) / Ve+Vd
Balfour Beatty Plc (UK)
Value of equity (Ve) = share price*equity = 4.43*430=1904.9 GBPm
Value of debt (Vd) = 42 GBPm
Cost of debt (Kd) = interest/Vd=5/42=11.9 %
Cost of equity:
Dividend yield – 15.04%
CAPM – 8.46%
WACC (Dividend yield) = ((0.1504*1904.9) + (0.119*42))/ (42+1904.9) =14.97%
WACC (CAPM) = ((0.0846*1904.9) + (0.119*42))/ (42+1904.9) = 8.53%

JSC SISTEMA-HALS (Rus)

Value of equity (Ve) = share price21*equity22 = 262.47*6316.318 =1657843.985 $m
Value of debt (Vd)23 = 297.234 $m
Cost of debt (Kd) = interest/Vd=85.264/297.234=28.69%
Cost of equity:
CAPM – 19.26%

WACC (CAPM) = ((0.1926*1657843.985) + (0.2869*297.234))/ (1657843.95+237.234) =

19.26%

21
www.sistema-hals.ru/
22
JSC SISTEMA-HALS (Rus) Annual report 2006 page 3
23
JSC SISTEMA-HALS (Rus) Annual report 2006

5
Appendix 3
Calculation of the value of business equity

1) Method #1 “Net Assets per share”

MV = (Total assets – Total liabilities)/No Shares = Net assets / No shares

Balfour Beatty Plc (UK)

Total assets24 – (GBPm) 2578
Total liabilities25 - (GBPm) 2191
Net assets - (GBPm) 387
Number of shares - 430 mln
MV=387/430 = 0.9 GBP

JSC SISTEMA-HALS (Rus)

Net assets26 - ($ mln) 412
Number of shares 6,316318 mln
MV=412/6316 = 65, 23 $

24
Balfour Beatty Plc (UK) Annual report 2006 page 64
25
Balfour Beatty Plc (UK) Annual report 2006 page 64
26
JSC SISTEMA-HALS (Rus) Annual report 2006 page 2

6
2) Method #2 P/E Multiple of earnings method
a) Past Earnings
MV=Past Earnings * P/E ratio/No Shares
Balfour Beatty Plc (UK)
Assumption:
- P/E ratio for the calculation was taken as average for 4 years

Average for 4
Balfour Beatty Plc (UK) 2006 2005 2004 2003 Total years
Earnings27 (GBPm) 91 106 203 89 489 122.25

Average earnings for latest 4 years (GBPm) – 122.25

Average P/E ratio – 14.96
Average
Balfour Beatty for 4
Plc (UK) 2006 2005 2004 2003 Total years
P28/E 29 443/21.2=20.9 356/24.9=14.3 315/20.6=15.29 219/23.4=9.35 59.84 14.96

Number of shares – 430 mln

MV = 122.25*14.96/430 = 4.25 GBP

JSC SISTEMA-HALS (Rus)

Assumprion:
- For calculation was taken P/E ratio only for 2006 (because it was the first year of
quoting on the Stock Exchange)

JSC SISTEMA-HALS Average for 4

(Rus) 2006 2005 2004 Total years
Earnings30 ($m) 55574 707 12878 69159 23053

Average earnings for latest 4 years ($ mln) – 23053

P/E ratio – 262.47/8.8=29.83
Number of shares – 6316.318 mln

27
Balfour Beatty Plc (UK) Annual report 2004 -2006
28
http://www.balfourbeatty.com/bby/investors/price/calculator/
29
Balfour Beatty Plc (UK) Annual report 2004 -2006
30
JSC SISTEMA-HALS (Rus) Annual report 2005-2006

7
 MV = 23053*29.83/6316 = 108, 88 $

b) Next Years Earnings

MV=Future Earnings * P/E ratio/No Shares

Assumption:
- According to early expected dividend growth, which is equal 12.72%, we expect that earnings
will increase with the same rate.
- For finding earnings for 2007 we add 12.72% to 91 (factual earnings in 2006) and find out
102.58 GBPm and so on for the next years.

Balfour Beatty Plc (UK)

Average
Balfour Beatty Plc for 4
(UK) 2007 2008 2009 2010 2011 Total years

91*12.72% 102.58*12.72%= 115.6*12.72% 130*12.72%= 146*12.72 658.75 131.75

Earnings (GBPm) =102.58 115.6 =130 146 %=164.57

Average P/E ratio – 14.96

Number of shares – 430 mln
MV=131.75*14.96/430=4.58 GBP

JSC SISTEMA-HALS (Rus)

Assumption:
- According to expected revenue growth31, which is equal 13%, we expect that earnings will
increase with the same rate.
- For finding earnings for 2007 we add 13% to 55 574 (factual earnings in 2006) and find out
62798$m and so on for the next years.

JSC SISTEMA- 2007 2008 2009 Total Average for 4 years

31
JSC SISTEMA-HALS (Rus) Annual report 2005-2006 Page 30

8
 HALS (Rus)
Earnings ($m) 62798 70962 80187 213947 71316

Average P/E ratio32 – 262.47/8.8=29.83

Number of shares – 6316.318 mln
MV=71316*29.83/6316=336.82 $

3) Method #3 “NPV of Future Cash Flows”

MV= NPV of future Cash Flows / # Shares
Balfour Beatty Plc (UK)
Assumption:
- Were expected the growth equal 15% growth for each year.
- For finding the net operation cash flow for 2006 year were added 15% to 193 (factual
cash flow in 2006) and find out 221.95 GBPm and so on for the next years.
- As Discounting factor (DF) were used WACC (CAPM) - 8.53% = 9%

Cash flow:
Discount factor 9%
Y1 193*15% = 221.95 DF 0.917
Y2 221.95*15% = 255.24 DF 0.842
Y3 255.24*15% =293.53 DF 0.772
Y4 293.53*15% = 337.56 DF 0.708
Y5 337.56*15% = 388.19 DF 0.650

PV of future cash flow:

Y1 203.52
Y2 214.91
Y3 226.60
Y4 238.99
Y5 252.32
Sum: 1339.86
MV=1339.86/430 33=3.11GBP
JSC SISTEMA-HALS (Rus)
Assumption:
32
Use the P/E ratio only for 2006 (because in this year quote on the Stock Exchange)
33
#of shares

9
 - Were expected the growth equal 25% growth for each year.
- For finding the net operation cash flow for 2006 year were added 25% to 41237 (factual
cash flow in 2006) and find out 51546 $m and so on for the next years.
- As Discounting factor (DF) were used WACC (CAPM) – 19.26% = 19%

Cash flow:
Discounting factor 19%
Y1 41.237*25% = 51.546 DF 0.840
Y2 51.546*25% = 64.432 DF 0.706
Y3 64.432*25% = 80.541 DF 0.593

PV:
Y1 43.299
Y2 45.489
Y3 47.761
Sum: 136.549
MV= 136.549/6.316 34=21.62$

Appendix 4
In this appendix are presented the cutting from finantial documents of the JSC SISTEMA-HALS
(Rus) (sourced: Annual report 2006)
34
#of shares

10
11
12
13
14
Appendix 5
In this appendix are presented the cutting from finantial documents of the Balfour Beatty Plc
(UK) (sourced: Annual report 2006)

15
16