Finance_Corporate Restructuing and Valuation (CRV) — Summer 2022

“While due diligence is not an insurance against a bad deal, it certainly provides enough assurance that the due diligence is per se not bad.” In the context of the above statement explain the concept of due diligence and major types of due diligence in brief.

Explain the term merger? What is the potential economic advantage of the mergers?

Distinguish between ‘hostile takeover’ and ‘friendly takeover’. What are the strategies adopted by the acquiring firm in case of a hostile takeover?

“DCF approach is conceptually the most ideal among various approaches for business valuation” Do you agree? Explain your answer.

The following financial information is available for company D, a pharmaceutical company PBDIT Rs. 18 Crore Book value of assets Rs. 90 Crore Sales Rs. 125 Crore Based on an evaluation of several pharmaceutical companies, companies A, Band Care comparable to company D. Looking at the characteristics of A, Band Cfollowing multiples are reasonable for company D. Market Value / PBDIT 17 Market Value / Book value Market Value / Sales 2.2 Find out the value of Dby using each of the above multiples

Elucidate the statement “Conglomerate firm shares tend to have higher market value due to lower cost of capital”.

Delta Corporation plans to acquire Theta corporation. The following information is available Theta Delta Corporation Corporation Total current earnings, Rs. 50 million Rs. 20 million Number of outstanding shares, 20 million 10 million Market price per share Rs. 30 Rs. Page 1 of

What is the maximum exchange ratio acceptable to the shareholders of Delta Corporation if the PE ratio of the combined entity is 12 and there is no synergy gain?

What is the minimum exchange ratio acceptable to the shareholders of Theta Corporation if the PE ratio of the combined entity is 11 and there is a synergy benefit of 5 percent?

Assuming that there is no synergy gain, at what level of PE multiple will the lines ER1 and ER2 intersect?

Define Intangibles and explain in detail the reasons to Conduct Intangible Valuation

Following is the balance sheet of Hypo Company Limited as on March 31, the current year: (Rs lakh) Liabilities Amount Assets Amount Share capital Fixed assets 150 40,000 11% Preference shares of Less: Depreciation 30 120 Rs 100 each, fully paid-up 40 Current assets: 1,20,000 Equity shares of Stocks 100 Rs 100 each, fully paid-up 120 Debtors 50 Profit and loss account 23 Cash and bank 10 160 10% Debentures 20 Preliminary expenses Trade creditors 71 Provision for income tax Additional Information:

Afirm of professional valuers has provided the following market estimates of its various assets: fixed assets Rs 130 lakh, stocks Rs 102 lakh, debtors Rs 45 lakh. All other assets are to be taken at their balance sheet values. (ii) The company is yet to declare and pay dividends on preference shares. (iii) The valuers also estimate the current sale proceeds of the firm’s assets, in the event of its liquidation: fixed assets Rs 105 lakh, stock Rs 90 lakh, debtors Rs 40 lakh. Besides, the firm is to incur Rs 15 lakh as liquidation costs. You are required to compute the net asset value per share as per book value, market value and liquidation value bases.

With reference to Accounting Standard-14, discuss in brief different methods of amalgamation and conditions for the same if any

Following information is available for PQR Ltd Profit before tax for current year-end amount to Rs 64 lakh, including Rs 4 lakh as extraordinary income. Besides, the firm has earned interest income of Rs 1 lakh in the current year from investments in marketable securities. It is not usual for the firm to have excess cash and invest in marketable securities. However, an additional amount of Rs 5 lakh per annum, in terms of advertisement and other expenses, will be required to be spent for the smooth running of the business in the years to come. In order to match the revalued figures of these fixed assets, additional depreciation of Rs 6 lakh is required to be taken into consideration. Effective corporate tax rate may be taken at 30 per cent. The capitalisation rate applicable to businesses of such risks is 15 per cent. From the above information, compute the value of business, value of equity if external liabilities are 30 lakh and price per equity share, based on the capitalisation method.

Company Xwishes to takeover Company Y. The financial details of the two companies are as under: Page 2 of Particulars Company X Company Y Equity shares (Rs 10 per share) Rs 1,00,000 Rs 50,000 Share premium account — 2,000 Profit & loss account 38,000 4,000 Preference shares 20,000 — 10% debentures 15,000 5,000 1,73,000 61,000 Fixed assets 1,22,000 35,000 Net current assets 51,000 26,000 Maintainable annual profit (after tax) for equity shareholders 24,000 15,000 Market price per equity share 24 27 Price earnings ratio 10 9 What offer do you think Company Xcould make to Company Yin terms of exchange ratio, based on (a) net asset value; (b) earnings per share; and (c) market price per share?

Which method would you prefer from Company X’s point of view

Balance sheet of XYZ Limited as on March 31 (current year) is as follows: Liabilities Amount Assets Amount Equity share capital 10 lakh shares @ Rs 20 each) 200 Plant and machinery 250 Furniture and fittings 13% Debentures 100 Inventories 90 Retained earnings 50 Debtors 25 Creditors and other current liabilities 30 Bank balance

The company is to be absorbed by ABC Limited on the above date. The consideration for absorption is the discharge of debentures at a premium of 10 per cent, taking over the liability in respect of sundry creditors and other current liabilities and payment of Rs in cash and one share of Rs 10 in ABC Limited, at the market value of Rs 16 per share, in exchange for one share in XYZ Limited The cost of dissolution of Rs 10 lakh is to be met by the purchasing company. (ii) Expected incremental yearly free cash flows (FCFF) from acquisition for 5 years are as follows: (Rs lakh) Year 1 1002135 (iii) The FCFF of XYZ Limited are expected to be constant after 5 years. (iv) Cost of capital relevant for XYZ Limited cash flows is to be 14 per cent. Based on the above information, comment on the financial soundness of ABC’s decision regarding merger. Page 3 of