How to Solve Valuation Case Studies
Twenty-six marks ride on three passages. Read the questions first, answer from the passage, check the chain.
Three case studies carry 26 of the 100 marks in every asset class: 13 questions of 2 marks each, in cases of six, four and three questions. Each case opens with a passage describing a transaction, and every question is answered from that passage.
Case studies are where most candidates lose a pass. The questions are often chained, so one early error costs several answers, and each wrong 2-mark answer costs 0.5 marks under 25% negative marking. Technique matters as much as knowledge here.
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A Method That Works Under Time
- 1
Read the questions before the passage
Know what you are hunting for: a discount rate, a share count, a valuation date, a purpose. Then read the passage once, marking those figures.
- 2
Identify the purpose and the basis of value
A merger ratio, an income-tax value under rule 57 (earlier Rule 11UA), a FEMA price and an IBC fair value each need a different basis. The purpose sentence usually decides one question outright.
- 3
Write down the data in a small table
Cash flows by year, rates, debt, cash, share count. Most arithmetic errors come from picking up the wrong year or forgetting a non-operating asset.
- 4
Solve chained questions in order
If question 3 needs the WACC from question 2, solve question 2 carefully first. If an answer option matches your figure exactly, that is a good sign; if none does, recheck the input before the arithmetic.
- 5
Sanity-check the result
Compare equity value with book value and with any market multiple in the passage. If terminal value is nearly all of enterprise value, recheck the growth rate and the discount rate before moving on.
A Worked Chain
Illustration only, round figures. Free cash flow to the firm ₹100, ₹110 and ₹120 crore in years 1 to 3, WACC 12%, growth after year 3 of 5%, net debt ₹300 crore, 10 crore shares.
PV of years 1 to 3
Working
100 × 0.8929 + 110 × 0.7972 + 120 × 0.7118
Result (₹ crore)
262.40
Terminal value at year 3
Working
120 × 1.05 ÷ (0.12 − 0.05)
Result (₹ crore)
1,800.00
PV of terminal value
Working
1,800 × 0.7118
Result (₹ crore)
1,281.24
Enterprise value
Working
262.40 + 1,281.24
Result (₹ crore)
1,543.64
Equity value
Working
1,543.64 − 300
Result (₹ crore)
1,243.64
Value per share
Working
1,243.64 ÷ 10 crore shares
Result (₹ crore)
₹124.36 per share
| Step | Working | Result (₹ crore) |
|---|---|---|
| PV of years 1 to 3 | 100 × 0.8929 + 110 × 0.7972 + 120 × 0.7118 | 262.40 |
| Terminal value at year 3 | 120 × 1.05 ÷ (0.12 − 0.05) | 1,800.00 |
| PV of terminal value | 1,800 × 0.7118 | 1,281.24 |
| Enterprise value | 262.40 + 1,281.24 | 1,543.64 |
| Equity value | 1,543.64 − 300 | 1,243.64 |
| Value per share | 1,243.64 ÷ 10 crore shares | ₹124.36 per share |
Where This Chain Usually Breaks
- check_circleGrowing the terminal cash flow twice, or not at all. The terminal value uses year 3 cash flow × (1 + g), divided by (WACC − g).
- check_circleDiscounting the terminal value by 4 years instead of 3. It is a value at the end of year 3.
- check_circleDeducting gross debt when the passage gives cash too. Use net debt, and add back any surplus asset the passage mentions.
- check_circleUsing FCFF with the cost of equity. Free cash flow to the firm goes with WACC; free cash flow to equity goes with the cost of equity.
- check_circleHere terminal value is 83% of enterprise value (1,281.24 ÷ 1,543.64). That is normal for a three-year forecast, and it is why a small change in g moves the answer so much.
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Time and Penalty Arithmetic
At an even pace, 26 marks of a 2-hour, 100-mark paper is about 31 minutes (our arithmetic). A wrong 2-mark answer costs 0.5 marks, so a guess between two remaining options is still worth taking on average: half the time you gain 2, half the time you lose 0.5.
How the Valuation Examination Tests This
Expect a narrated transaction (a merger, a preferential issue, a fund buying a stake, a resolution plan) with questions on the method, the rate, the arithmetic and the governing rule. The trap is answering from memory of the general rule when the passage has changed one fact, such as a mid-year cash flow or a non-operating asset. Answer from the passage.
FAQs
How many case studies are there in the IBBI valuation exam?expand_more
Three, carrying 26 marks: one with six 2-mark questions, one with four and one with three. The format is the same for every asset class.
Is there negative marking in the case study questions?expand_more
Yes. Each wrong answer loses 25% of the question's marks, which is 0.5 marks on a 2-mark question.
Should I solve case studies first or last?expand_more
That is a personal choice; what matters is not running out of time on them. Many candidates do the 1-mark questions first and keep a fixed block of time for the three cases. Practise both orders on full timed papers and keep the one that scores better.
What topics do SFA case studies usually cover?expand_more
The syllabus names DCF, relative valuation, bond pricing and duration, option pricing, WACC and CAPM, and intangible asset valuation applied to a given set of facts.
Next steps
- DCF valuationarrow_forward
- WACC and CAPMarrow_forward
- Preparationarrow_forward
- SFA mock testarrow_forward
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