PHOENIX

EDUCARE
CRVI

VALUATION NUMERICALS

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 1. XYZ limited is intending to acquire ABC limited by merger and the following
information is available in respect of both the companies.
Particulars XYZ ltd. ABC ltd.
No. of equity shares 5 lakh 3 lakh
Profit after tax (PAT) 25 lakh 9 lakh
Market price per share 21 14

Required
i. Calculate the present EPS of both the companies
ii. If proposed merger takes place what would be the new EPS for XYZ ltd. Assume
that the merger takes place by exchange of equity shares and exchange ratio is
based on current market price.
iii. Will you recommend the merger of both the companies? Justify your answer.

2. K Ltd. Is considering a merger with P Ltd. K Ltd.’s shares are currently traded at
Rs. 25 per share it has 2 lakh shares outstanding and its earnings after tax amount
to Rs. 4 lakhs. P Ltd. Has 1 Lakh share outstanding. Its current market price is Rs.
12.50 per share and EAT is Rs. 1 lakh. The merger will be effected by means of
stocks swap (Exchange). P Ltd. Has agreed to plan under which K Ltd. Will offer
the current market value of P Ltd.’s shares.
Required
i. What are the pre-merger earnings per share (EPS) and P/E ratio of both the
companies?
ii. What must be the exchange ratio for K Ltd.’s. pre-merger and post-merger EPS
to be the same?
iii. If P Ltd.’s P/E ratio is 8 what will be its current price? What will be the exchange
ratio? What will be K Ltd.’s post-merger EPS?

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 3. GPL is taking over TFL. Shareholders of TFL would get 0.8 shares of GPL for each
share held by them. The merger is not expected to yield any economies of scale and
operating synergy. The relevant data of the two companies are as follows.
Particulars GPL TFL
Net sales (Rs. in Crores) 335 118
Profit after tax (Rs. in Crores) 58 12
No. of shares 12 3
Earnings per share (Rs.) 4.83 4
Market value per share (Rs.) 30 20
P/E ratio 6.21 5

Calculate following with respect to resultant company after merger

i. EPS
ii. P/E ratio
iii. Market value per share
iv. No. of shares
v. Total market capitalization

4. BELL Ltd. Is planning to merge with RING Ltd. The following is the data regarding
both the companies.
Particulars BELL Ltd. RING Ltd.
Paid up share capital (fully paid up equity shares of 40 lakh 24 lakh
Rs.10 each)
Market price of shares (latest traded in stock exchange) 40 24
Profit after tax (PAT) 20 lakh 14 lakh

What should be basis of exchange ratio so that BELL Ltd. Will gain?

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 5. SWAN Ltd. Is holding company of DUCK Ltd. SWAN Ltd. Wants to merge with DUCK
Ltd. The following details are available
Particulars SWAN Ltd. DUCK Ltd.
Paid up equity shares (Rs. 10 each) 50 lakh 40 lakh
Market value of shares ( latest traded in stock 50 25
exchange)
Profit after tax (PAT) 25 lakh 12 lakh
Calculate no. of shares SWAN Ltd will issue to the shareholders of DUCK Ltd. Is exchange
ratio is on the basis of
i. Earnings per share (EPS)
ii. Market price

6. A Ltd is intending to acquire X Ltd. By merger and the following information is

available with respect to the companies.
Particulars A Ltd X Ltd.
No. of equity shares 10 lakhs 6 lakhs
Earnings after tax 50 lakh 18 lakh
Market value per share 42 28
Calculate
i. What is the present EPS of both the companies?
ii. If the proposed merger takes place what would be the new earnings per share for
the A Ltd.? Assume that the merger take place by exchange of equity shares and
the exchange ratio is based on current market price.
iii. What should be exchange ratio if X Ltd. Wants to ensure the earnings to members
are as before the merger takes place.

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 7. M company Ltd. Is studying the possible acquisition of N company Ltd. By way of
merger. The following data are available in respect of both the companies.
Particulars M Co. Ltd. N Co. Ltd.
Earnings after tax 80 lakh 24 lakh
No of equity shares 16 lakh 4 lakh
Market value per share 200 160
Required
i. If merger goes through by way of exchange of equity and the exchange ratio is
based on the current market price what is the new EPS of M Co. Ltd?
ii. N Co. Ltd. Wants to be sure that the available earnings to its shareholders will not
be diminished by the merger. What would be the exchange ratio in that case?

8. RIL is considering to take over SIL. The particulars of these companies are given
below
Particulars RIL SIL
EAT 20 lakh 10 lakh
Outstanding equity shares 10 lakh 10 lakh
EPS 2 1
P/E ratio 10 5
Required
i. What is the market value of each company before merger?
ii. Assume that the management of RIL estimates that the shareholders of SIL will
accept an offer of 1 share of RIL for 4 shares of SIL. If there are no synergic
effects what is the market value of the post-merger RIL? What Is new price per
share? Are the shareholders of RIL better or worse off than they were before
merger?
iii. Due to synergic effects, the management of RIL estimates that the earnings will
increase by 20%.what are the new post-merger EPS and price per share? Will the
shareholders be better off or worse off than before merger?

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 9. A Ltd. Wants to acquire T Ltd. And has offered a swap ratio of 1:2. Following is the
information provided
Particulars A Ltd. T Ltd.
PAT 18 lakh 3.60 lakh
Outstanding equity shares 6 lakh 1.80 lakh
EPS 3 2
P/E ratio 10 times 7 times
Market price per share 30 14
Required
i. The no. of equity shares to be issued by A Ltd. For acquisition of T Ltd.?
ii. What is EPS of A Ltd. after acquisition?
iii. What is expected market price of A Limited per share after acquisition, assuming its
P/E multiple remaining unchanged?
iv. Determine market value of merged firm?

10. AIL wants to acquire PLL. AIL has 6 lakhs equity shares and PLL has 4 Lakhs equity
shared with market value of Rs. 60 and 40 respectively. Their respective EPS are
Rs.8 per share and Rs. 4.5 per share. It is proposed to give 1 share of AIL to the
share holders of PLL in the ratio of 2 shares held in PLL. Based on above, you are
required to calculate EPS after acquisition of the company.

11. XYZ Ltd. is considering merger with ABC Ltd. XYZ Ltd.’s shares are currently traded
at Rs. 20. It has 2.50 lakh shares outstanding and its earnings after tax amounts to
Rs. 5 lakh. ABC Ltd. has 1.25 lakh shares outstanding, its current market price is Rs.
10 and its EAT is Rs.1.25 lakh. The merger will be effected by means of stock swap.
ABC Ltd. has agreed to a plan under which XYZ Ltd. will offer current market value
of ABC Ltd.’s shares
Required
i. What is pre-merger EPS and P/E ratio of both the companies?

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 ii. If ABC Ltd.’s P/E ratio is 6.4, what is its current market price? What is the
exchange ratio? What will be XYZ Ltd.’s post-merger EPS?

12. R Ltd. is considering to purchase L Ltd. R Ltd has 3 lakhs shares having market
value of Rs. 30 per share. While L Ltd. has 2 lakh share with market price of Rs. 20
per share. The EPS of R Ltd. and L Ltd. are Rs. 4 and Rs. 2.25 respectively.
Management of both the companies are discussing proposal of exchange of 0.5 share
of R Ltd. for 1 share of L Ltd. you are required to i) calculate EPS after merger
ii)Show the impact on EPS for shareholders of both the companies.

13. Company X is considering purchase of company Y. company X has 3 lakhs shares

having market price of Rs. 30 per share while company y has 2 lakhs shares selling
at Rs. 20 per share. The EPS of both the companies are Rs.4 and Rs2.25
respectively. Management of both the companies are discussing 2 alternative
proposals for exchange of shares as indicated below
i) In proportion to relative earnings per share of 2 companies
ii) 0.5 share of company X for 1 share of company Y (05:1)
You are required to calculate EPS after merger under 2 alternatives.

14. The following information is available regarding firm MARK Ltd. and firm MASK Ltd.
Mark Ltd is acquiring firm and MASK Ltd is target firm
Particulars Firm MARK Firm MASK
Earnings after tax 2000 lakh 400 lakh
No. of outstanding 200 lakh 100 lakh
shares
P/E ratio 10 times 5 times
Required
i) What is the swap ratio based on current market price?

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 ii) What is EPS of MARK Ltd. after acquisition?
iii) What is expected market price?
iv) What is EPS of MARK Ltd. after acquisition?
v) What is expected market price per share of MARK Ltd after acquisition, assuming
P/E ratio of MARK Ltd. remains unchanged
vi) Determine the market value of the merged firm.
vii) Calculate gain or loss for shareholders of the 2 independent companies after
acquisition.

15. The following information is provided relating to acquiring company EFFICIENT Ltd.
and the target company HEALTHY Ltd.
Particulars EFFICIENT Ltd. HEALTHY Ltd.
No. of shares (face value of Rs. 10 each) 10 lakh 7.5 lakh
Market capitalization 500 lakh 750 lakh
P/E ratio 10 5
Reserves and surplus 300 lakh 165 lakh
Promoters holdings(No. of shares) 4.75 lakh 5 lakh
Board of directors of both the companies have decided to give a fair deal to the
shareholders and accordingly for swap ratio the weights are decided as 40%, 25%, and
35% respectively for earnings, book value and market price of shares of each company:
i) Calculate the swap ratio and also calculate promoters holding percentage after
acquisition
ii) What is the EPS of EFFICIENT Ltd. after acquisition of HEALTHY Ltd.?
iii) What is the expected market price per share and market capitalization of
EFFICIENT Ltd. after acquisition, assuming P/E ratio of firm EFFICIENT Ltd.
remains unchanged.
iv) Calculate free float market capitalisation of the merged firm?

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 16. The following information is relating to FORTUNE INDIA Ltd. having 2 divisions viz.
pharma division and fast moving consumer good division (FMCG division) paid up
share capital of FORTUNE INDIA Ltd. is consisting of 3000 lakhs equity shares of Rs
1 each. FORTUNE INDIA Ltd. decided to demerge pharma division as FORTUNE
PHARMA Ltd. wef 1/4/2009. Details of FORTUNE INDIA Ltd as on 31/3/2009 and of
FORTUNE PHARMA Ltd. as on 1/4/2009 are given below.
Particulars FORTUNE PHARMA Ltd. FORTUNE INDIA Ltd.
Secured loans 400 lakh 3000 lakh
Unsecured loans 2400 lakh 800 lakh
Current liabilities and provisions 1300 lakh 21200 lakh
Assets
Fix assets 7740 lakh 20400 lakh
Investments 7600 lakh 12300 lakh
Current assets 8800 lakh 30200 lakh
Loans and advances 900 lakh 7300 lakh
Deferred tax/ misc. expenses 60 lakh (200 lakh)
Board of directors of company have decided to issue necessary equity shares of FORTUNE
PHARMA Ltd. of Rs. 1 Each without any consideration to the shareholders of FORTUNE
INDIA Ltd. for that purpose following points are to be considered
i) Transfer of liabilities and assets are at book value
ii) Estimated profit for the year 2009-10 is Rs. 11400 lakh for FORTUNE INDIA Ltd.
and Rs. 1470 lakh for FORTUNE PHARMA Ltd.
iii) Estimated market price of FORTUNE PHARMA Ltd. is Rs. 24.50 per share.
iv) Avg. P/E ratio of FMCG sector is 42 and PHARMA sector is 25, which is to be
expected for the both the companies
Calculate
i) The ratio in which shares of FORTUNE PHARMA are to be issued to the
shareholders of FORTUNE INDIA Ltd.
ii) Expected market price of FORTUNE INDIA Ltd.
iii) Book value per share of both the companies immediately after demerger

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 17. Balance sheet of FDL and GCL as on 31st march 2013 ie. The date on which the
companies were admitted and a new company WWL was formed as follows
Equity and liability FDL GCL
Shareholders fund
Equity shares of Rs.10 each 6500 4500
Reserves and surplus 3000 5000
Current liabilities 2000 1000
Trade creditors and other liabilities
Total 11500 10500
Assets
Non-current assets 8000 7500
Current Assets 3500 3000
Total 11500 10500
The fix assets of FDL were valued at Rs. 1 crore and that of GCL were valued at Rs. 90
lakh. WWL would issue the requisite no. of equity shares of Rs. 10 each at 50% premium
so as to discharge the claim of the equity share holders of the FDL and GCL. How many
shares of WWL should be issued to take over the business of the merging companies?

18. Sanjay holds 12000 equity shares in HEALTHY FOOD Ltd. the nominal and paid-up
share capital of which consist of –
i) 40000equity shares of RS 1 each ii) 10000 8% preference shares (non-participating)
of Rs 1 each.
It is a certain that i) the normal annual profit of such a company is a Rs12000. Ii)
The normal rate of transfer to general reserve is 10% iii) normal return by way of
dividend on the paid up value of equity share capital for the type of business
carried on by the company is 15%. Prepare a share valuation report for Sanjay
showing value of his shareholding in HEALTHY FOOD Ltd. based on above
parameters.

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 19. A Ltd. is run and manage by an effective team that insist on reinvesting 60% of
its earnings in projects that provided a return on equity (ROE) of 10% despite the
fact that the firms capitalisation rate (KE) is 15%.
The firm’s current years earnings is at Rs. 10 per share.

Required

i) At what price will the shares of A limited sell.

ii) What is the present value of growth opportunities?
iii) Why would such firm be a takeover target?

20. BLUE SPRING Ltd. incorporated a new company namely- DEFENCE SPRINGS Ltd. and
transferred its defence component division to it on a sample sale basis for a lump
sum consideration of RS 255 lakh.
The assets and liabilities of the defence component division as are under
Particulars RS in lakh
Assets-Gross value of fix assets 410
Accumulated depreciation till date 240
Current assets ( other than liquid assets) 80
Liquid assets 30
Liabilities: trade liabilities 80
Secured loans (excluding short term loans) 80
Short term loans 35
Calculate the following
i) Aggregate value of total assets
ii) Book value of net assets
iii) Net worth of defence component division
iv) Capital gain as per section 50B of income tax act 1961

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 21. The WIND URJA Ltd. is a closely held unlisted company with financial details as
under
Market value as on 31/3/2015
Assets Rs in lakh

Land and building 6500

Plant and machinery 2000
Furniture and fixture 20
Trade receivable 1000
Cash and cash equivalents 30
Spares 10
Outside liabilities
Trade payables 20
Long term loans 2000
Outstanding expenses 5

Worldwide Wind Energy Ltd. is ready to take over Wind Urja Ltd. by paying 35%
premium over the market value of assets and liabilities as goodwill.

Calculate the price which Worldwide Wind Energy Ltd. is ready to pay to the
shareholders of Wind Urja Ltd.

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 22. White Chicks Ltd. is listed on Bombay stock exchange. The management wishes to
issue sweat equity shares to the new chairman and MD for which EGM is scheduled
on 15 July 2016 . based on following information calculate the minimum value at
which the sweat equity shares can be issued and submit your opinion to
management making your own assumption wherever required. Substantiated your
answer with the relevant provisions of SEBI regulations.
Particulars RS
Avg. age of weekly high and low of the 275
closing prices during the last 6 months as on
the relevant date
Avg. of weekly high and low of the closing 285
prices during the last 6 weeks as on relevant
date
Avg. of weekly high and low of the closing 185
prices during the last 6 years as on the
relevant date
Avg. of weekly high and low of the closing 282
prices during last 2 months as on relevant
date
Avg. of weekly high and low of the closing 314
prices during last 2 weeks as on relevant date
Avg. of weekly high and low of the closing 214
prices during last 2 years as on relevant date

23. Balance sheet of FDL and GCL as on 31 March 2013 i.e. the date on which
companies are amalgamated and new company WWL was formed as follows
Balance sheets as on 31 March 2013
Particulars FDL (Rs in Thousands) GCL (Rs in
Thousands)
Equity and liabilities
Shareholders fund equity shares of 6500 4500

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 Rs. 10 each
Reserves and surplus 3000 5000
Current liabilities trade creditors and 2000 1000
other liabilities
Total 11500 105000
Assets
Non-current assets 8000 7500
Current assets 3500 3000
Total 11500 10500
The fix assets of FDL were valued at Rs. 10000 thousand and that of GCL were valued at
Rs. 9000 thousand.
WWL would issue the requisite no of equity shares of Rs 10 each at 50% premium to
discharge the claim of equity share holders of FDL and GCL. How many shares of WWL
should be issued to take over the business of the 2 merging companies?

24. Blue Ltd. and the Moon Ltd have agreed to amalgamate to form a new company
Blue moon Ltd. after negotiation, the 2 companies have decided on the balance
sheet as given below
Particulars Blue Ltd. Rs in Moon Ltd Rs in thousand
thousand
Equity and liability
Shareholders fund
Share capital : equity share of 5 lakh 10 lakh
Rs.10 each
Reserves and surplus
Reserve fund 20000 -
Surplus 40000 40000
Current liabilities: trade payables 40000 60000
Total 6 lakh 11 lakh
Assets
Non-current assets
Tangible assets
Land and building 2 lakh 4.25 lakh
Plant and machinery 1.70 lakh 2.75 lakh

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 Intangible assets (goodwill) 50000 100000
Current assets
Inventories 80000 120000
Trade receivable 30000 1 lakh
Cash and cash equivalent 70000 80000
Total 6 lakh 11 lakh
The assets and liabilities are taken over by Blue Moon Ltd. compute the total no of
shares of the Blue Moon Ltd having a value of Rs. 10 each to be issued to the
shareholders of Blue Ltd. and Moon Ltd. using net asset value method

25. Zen Ltd has earned a profit of Rs. 40 lakh before tax for the year ended 31 March
2014. Tax amount to Rs 1140000. The share capital of the company is Rs. 60 lakh (4
lakh equity shares of Rs. 10 each and 2 lakhs, 7 % preference of Rs 10 each)
compute EPS of Zen Ltd.

26. GPL is taking over TEL. the shareholders of TEL would get 0.8 shares of GPL for
each share held by them. The merger is not expected to yield in economies of scale
and operating synergy. The relevant data of the 2 companies are as follows
Particulars GPL TEL
Net sales (Rs in crores) 335 118
Profit after tax (Rs in crores) 58 12
No of shares (crores) 12 3
Earnings per share (RS) 4.83 4
Market value per share (RS) 30 20
P/E ratio 6.21 5
You are required to calculate to following in respect of the resultant company after merger
i) Earnings per share
ii) P/E ratio
iii) Market value per share
iv) No of share
v) Total market capitalisation

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 27. G Ltd. and W Ltd. decided to merge and a new company GW Ltd is formed. Following
are the extract from the financial records of G Ltd and W Ltd.
Particulars G Ltd (Rs in lakhs) W Ltd. (Rs in lakhs)
Equity and liability
Shareholders fund
Share capital : equity shares of Rs 800 1600
10 each
Reserves and surplus
Reserve fund 400 600
Surplus 600 700
Current liabilities: trade payable 700 800
Total 2500 3700
Assets
Non-current assets
Land and building 400 600
Plant and machinery 900 1500
Intangible assets (goodwill) 100 200
Current assets
Inventories 200 400
Trade receivables 400 300
Cash and cash equivalent 400 700
Total 2500 3700
The assets and liabilities of both the companies, excluding the intangible assets are taken
over by GW Ltd. compute the total no of shares to be issued to the shareholders of G Ltd
and W Ltd of the face value of Rs 10 each fully paid up at a premium of Rs 10 per share.

28. X Ltd is considering the proposal to acquire Y Ltd and the financial information is
given below.
Particulars X Ltd Y Ltd
No of equity shares 10 lakh 6 lakh
Market price for share (Rs) 30 18
Market capitalisation (Rs) 3 crore 1.08 crore

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 X Ltd. intends to pay 1.4 crore in cash to Y Ltd. if Y Ltd.’s market price reflects only its
value as a separate entity, calculate the cost of merger when merger is financed by cash.

29. Big Ltd., a manufacturer of cycles, is considering acquisition of Small Ltd. A tyre
manufacturing company for Rs 6 lakh. Big Ltd has a high rate of financial leverage,
which reflects in its 13% cost of capital. In the post-acquisition scenario, Big Ltd.
expects an overall cost of capital of 10% due to low financial leverage of Small Ltd.
the post-acquisition annual cash flows estimation attributable to the target
company which is expected spread over a period of 20 years is Rs. 75000. Decide
about the acceptability of the acquisition if
i) You consider post acquisition cost of capital as 10%
ii) You do not consider the effect of changed capital structure on the cost of capital
and hence used 13 % discount rate.

30. The balance sheet of SH Ltd. as on 31 March 2017 is as follows.

Liabilities Amount Rs
150000 equity shares of Rs 10 each fully paid up 15 lakh
200000 equity shares of Rs 6 each fully paid up 12 lakh
60000 12% cumulative preference shares of Rs 10 6 lakh
each fullu paid up
Secured loans 14 lakh
Trade payable 6.50 lakh
Total 53.50 lakh
Assets amount Rs
Land and building 23 lakh
Furniture, fixture and fitting 3.9 lakh
Profit and loss account debit balance 13 lakh
Inventories 8.3 lakh
Trade receivables 4.10 lakh
Bank balance 1.2 lakh
Total 53.5 lakh

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 Current values of land and buildings are Rs 30 lakh furniture, fixture and fittings is
Rs 2.50 lakh, and inventory is valued at Rs. 9.11 lakh. Debtors are expected to
realise 90% of their book value. You are informed that the preference dividend has
not been paid for last 5 years. Calculate the intrinsic value of per equity shares by
net asset method.

31. The net profit earned during the last 5 years of XYZ Ltd. was (Rs in lakhs) 42, 47,
45, 39, and 47 respectively on the capital employed during all the period was Rs 4
crores. Market peers In the said industry expect 10% return on capital employed you
are required to calculate goodwill of XYZ Ltd. using
i) Capitalisation of Avg. profit method and
ii) Capitalisation of super profit method

32. FG Ltd gave the following information with the request to calculate the value of
each its equity shares:
i) Subscribed capital consist of fully paid up shares as follows:
10 lakhs 13% preference shares of Rs. 10 each and 20 lakhs equity shares of Rs.
10 each
ii) Profit after depreciation but before taxation is Rs. 180 lakh
iii) Transfer to general reserve Rs. 34.50 lakh
iv) Provision for taxation is 30%
v) Expected dividend is 20 % for the relevant industry

33. From the following data noticed from published financials, a certain intrinsic value
of equity shares:
Goodwill Rs 56400
Market value of other assets Rs. 18 lakh
Debentures 10 lakh
Trade payables 2.50 lakh
Preference capital 2 lakh
Equity capital consists of 10000 shares of Rs 10 each fully paid up.

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 34. Wide Ltd. prepared a scheme of amalgamation and arrangement with Narrow ltd.
and Small Ltd. and the same was duly approved by the NCLT concerned. In the
approved scheme, the swap ratio was as under:
Narrow Ltd: Wide Ltd will issue 1 equity share of Rs 1 each in exchange of 3 equity
shares of Narrow Ltd.
Small Ltd: Wide Ltd will issue 1 equity share of Rs 1 each in exchange of 2 equity
shares of Small Ltd.
The pre amalgamation share capital were as follows
Particulars Wide Ltd. Narrow Ltd. Small Ltd.
Face value of equity shares (Rs) 1 1 1
No of fully paid up equity shares 10 lakh 5 lakh 4 lakh
Paid up value (Rs) 10 lakh 5 lakh 4 lakh
Reserves and surplus (Rs) 5 lakh 5 lakh 5 lakh
Total Rs 15 lakh 10 lakh 9 lakh
The pre-merger investments were as follows
No of shares
In Wide Ltd:
Equity shares of Narrow Ltd. 1 lakh
Equity shares of Small Ltd. 1 lakh
In Narrow Ltd:
Equity shares of Wide Ltd. 1 lakh
Equity shares of Small Ltd. 1 lakh
In Small Ltd:
Equity shares of Wide Ltd. 1 lakh
Equity shares of Narrow Ltd. 1 lakh
As the company secretory of Wide Ltd., you are required to advice the CEO:
i) The quantum of new shares of Wide Ltd. to be issued to the shareholders of
transferor company (A) Narrow Ltd. (B) Small Ltd.
ii) What will be the post issue share capital of Wide Ltd. after cancellation of cross
holding of equity shares of all companies?

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 35. Balance sheet of Smile Heavy Ltd. as on 31 March 2017 reveals as under
Liabilities Amount (Rs.)
150000 equity shares of Rs. 10 each fully paid up 1500000
200000 equity shares of Rs. 6 each fully paid up 1200000
60000, 12% cumulative preference share of Rs 10 each fully paid up 600000
Secured loans 1400000
Trade payables 650000
Total 5350000

Assets Amount Rs.

Land and building 23 lakh
Furniture, fixture and fittings 3.90 lakh
Profit and loss account debit balance 13 lakh
Inventories 8.30 lakh
Trade receivables 4.10 lakh
Bank balance 1.2 lakh
Total 5350000
Current value of land and building is Rs. 30 lakh
Furniture, fixture and fittings is Rs. 250000
Inventory is valued at Rs. 911000
Debtors are expected to realise 90% of their book value.
You are informed that preference dividend has not been paid for last 5 years.
Calculate the intrinsic value per equity share by net assets method.

36. The position of capital and reserves as on 31 March 2009 of Matrix Ltd. are given
below:
Equity shares (fully paid up of face value Rs 10 each) 1 lakh
Equity shares (Rs 5 is paid up on face value of Rs 10 each) 1 lakh
Equity shares with deferential voting rights (fully paid up of 1 lakh
face value of Rs 10 each)
Preference shares (fully paid up of Rs 100 each) 1 lakh
Free reserves 7.50 lakh

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 The MD of Matrix Ltd. wanted to place proposal before the board for buyback of its
100% preference share capital. You, as a company secretory advise your MD on following
issues:
i) Max. Limit up to which board can approve buyback of shares
ii) Max. Limit up to which shareholders can approve buyback of shares
iii) Max. Limit up to which company can buy back its own shares
iv) The situation in which further offer of buyback can be given by the company
within the period of 365 days.

37. The paid up capital of C Ltd. as on 31 March 2014 is Rs. 10 crores and its free
reserves as on the same date was Rs 10 crores. C Ltd. proposes to buy back its
shares for a value up to 15% of its paid up capital. State whether the board of C
Ltd. can approve buyback of companies shares up to 15 % of the paid up capital
under the provisions of companies act 2013.

38. H Ltd. wants to buy back its equity shares. The company has equity share capital
of Rs 100 crores (face value of Rs 10 fully paid up) and free reserves of Rs 200
crores. Partly paid up equity shares are Rs 60 crores. Preference share capital of
face value Rs 100 fully paid is Rs 40 crores. The company seeks your opinion about
the quantum of shares that can be bought back.

39. GW Ltd. is considering acquisition of FW Ltd. GW Ltd. has 3 lakh equity shares and
FW Ltd has 2 lakh equity shares and the market value of shares are Rs 30 and 20
respectively and EPS is Rs 4 per share and Rs 2.25 per share respectively. It is
proposed to give 1 share GW Ltd. to the shareholders of FW Ltd. for their 2 shares
in FW Ltd. based on above information you are required to calculate EPS after the
merger of the companies.

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 40. From the following information determine possible value of a brand under potential
earnings model
Particulars Rs. in Lakh
Profit after tax 2500
Tangible fix assets 10000
Intangible other than brands 1500
Expected normal return on the tangible fix assets: 18%
weighted avg. cost (14%) + normal spread
Weighted avg. cost of capital 14%
Appropriate capitalisation factor for intangibles 25%

41. From the following information determine possible value of a brand under potential
earnings model
Particulars Rs in Lakh
Profit before tax 6500
Income tax 1500
tangible fixed asset 10000
Intangible other than brand 5000
Expected normal return on tangible fix assets 3000
Appropriate capitalisation factor for intangibles 25%

42. From the following information determine possible value of a brand under potential
earnings model
Particulars Rs in Lakh
Profit before tax 13
Income tax 3
tangible fixed asset 20
Identifiable Intangible other than brand 10
Expected normal return on tangible fix assets 6
Appropriate capitalisation factor for intangibles 25%

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 43. ABC Ltd. wants to acquire PQR Ltd. the cash flow of ABC Ltd the merged entity is
given below (Rs. in lakh)
Year 1 2 3 4 5
ABC Ltd. 275 302.5 324.51 341 357.5
Merged 440 495 563 591.25 618.75
entity
Earnings would have witnessed 5% constant growth ratio without merger and 6 % with
merger on account of economies of operation after 5 years in each case. The cost of
capital is 15% since the details of the vendor company is not coming forth but principle
commitment was made by the Chairman of ABC Ltd as exchange ratio of 0.6. this is
likely to be expected by both the parties. From the view point of ABC Ltd, find out the
value of acquisition. Make suitable assumptions.

44. T Ltd may acquire V Ltd. T Ltd. estimates that V Ltd will provide Net income after
tax of Rs 20 crores in 1st year, Rs 30 crores in second year, Rs 40 crores in third
year, Rs 50 crores in each of the year from forth to sixth year and Rs 60 crores
annualy thereafter. V Ltd. requires fresh capital investment of Rs. 50 crores at the
end of first year and depreciation figured for first will be Rs 30 crores. Similarly
second year fresh capital investment will be Rs 50 crores and depreciation will be
Rs 40 crores third year onwards the fresh investment and depreciation will
stabilised at Rs 40 crores each. The aggregate required rate of return is 15 % just
the value of acquisition based on above information.

45. A Ltd. is considering take-over of B Ltd and C Ltd. the financial data for 3
companies are as follows
Particulars A Ltd B ltd C Ltd
Equity share capital of Rs 10 each (Rs in lakh) 450 180 90
Earnings (Rs in lakh) 90 18 18
Market price of each share (Rs) 60 37 46

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 Calculate
i) P/E ratio and EPS of A Ltd after acquisition of B Ltd and C Ltd separately.
ii) Will you recommend the merger of either or both of these companies? Justify
your answer

46. The following is balance sheet of A Ltd.

Liabilities Amount Assets Amount
13% preference share capital 1 lakh Fix assets 19 lakh
Equity shares (Rs 10 each) 20 lakh Investment 1 lakh
Retained earnings 4 lakh Stock 5 lakh
12% debentures 3 lakh Debtors 4 lakh
Current liabilities 2 lakh Bank 1 lakh
Total 30 lakh Total 30 lakh
X Ltd. agreed to take over A Ltd for which the purchase consideration was agreed as
follows:
i) Rs 3.3 lakh in 13% debentures of X Ltd. for redeeming 12% debentures of A Ltd.
ii) Rs 1 lakh in 12% convertible preference share for the preference share of A Ltd.
iii) 1.5 lakh equity share of X Ltd. at the market price of Rs 15 each.
iv) X Ltd to meet acquisition cost of Rs 30000
v) The breakup figure of eventual disposition by X Ltd. of unrequired current assets
and current liabilities of A Ltd is as follows: Investment Rs 1.25 lakh debtors Rs
1.50 lakh, inventories Rs 4.25 lakh and current liabilities 1.90 lakh

X Ltd is expected to generate yearly operating cash flows (after Tax) of Rs 7 lakh P.A.
for 6 years. Cost of capital of X Ltd is 15%. As a consultant comment on the financial
prudence of merger of A Ltd.

47. As a finance director of BM Ltd. you are analysing the planned acquisition of WA
Ltd. following data is available to you
Particulars BM Ltd WA Ltd
Expected earnings per share (RS) 10 3
Expected dividend per share (RS) 6 1.6

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 No of shares 20 lakh 12 lakh
Current market price per share (RS) 180 40
Your estimate indicates expected steady growth of earnings and dividend to tune of 6%
per year. However under the new management the growth rate is likely to go up to 8%
per year without additional investment. Calculate
i) The cost of acquisition by BM Ltd. if Rs 50 is paid in cash for each share of WA
Ltd.
ii) The cost of acquisition if 1 share of BM Ltd is for every 3 shares of WA Ltd is
an agreed exchange ratio.
iii) Compute gain from acquisition
iv) If the expected growth rate continues to be present rate how the new share price
as well as cost will be different.

48. A Ltd. is considering acquisition of B Ltd. The cash inflows after tax for B Ltd. are
estimated to be Rs 15 lakh per year in future. This forecast by A Ltd includes
expected merger synergic gains. B Ltd. currently has total assets of Rs 50 lakh with
20% of total assets being financed with date fund. A Ltd.’s pre-merger weighted
avg. cost of capital is 15%.
i) Based on A Ltd.’s pre-merger cost of capital, what is Max. purchase price that A
Ltd. would be willing to pay to acquire B Ltd?
ii) Assuming that by acquiring B Ltd, A Ltd. will move towards an optimal capital
structure such that its weighted avg. cost of capital will be 12% after acquisition.
Under these conditions what would be the Max. price A Ltd should be willing to
pay?

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