Seat No.: ________ Enrolment No.

___________

GUJARAT TECHNOLOGICAL UNIVERSITY

MBA – SEMESTER –IV-EXAMINATION – SUMMER-2022
Subject Code: 4549222 Date: 14-07-2022
Subject Name: Corporate Restructuing and Valuation
Time: 10:30 AM TO 01:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.

Q.1 Explain the following terms 14

1. Corporate Restructuring
2. LBO
3. Buyback
4. Replacement Value
5. Intrinsic value
6. Goodwill
7. Golden parachute

Q.2 (a) “While due diligence is not an insurance against a bad deal, it certainly provides enough 07
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.
(b) Explain the term merger? What is the potential economic advantage of the mergers? 07
OR
(b) Distinguish between ‘hostile takeover’ and ‘friendly takeover’. What are the strategies 07
adopted by the acquiring firm in case of a hostile takeover?

Q.3 (a) “DCF approach is conceptually the most ideal among various approaches for business 07
valuation” Do you agree? Explain your answer.
(b) The following financial information is available for company D, a pharmaceutical 07
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, B and C are
comparable to company D. Looking at the characteristics of A, B and C following
multiples are reasonable for company D.
Market Value / PBDIT 17
Market Value / Book value 3
Market Value / Sales 2.2
Find out the value of D by using each of the above multiples
OR
Q.3 (a) Elucidate the statement “Conglomerate firm shares tend to have higher market value due 07
to lower cost of capital”.

(b) Delta Corporation plans to acquire Theta corporation. The following information is 07
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. 20
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 (a) 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?
(b) 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?
(c) Assuming that there is no synergy gain, at what level of PE multiple will the lines
ER1 and ER2 intersect?

Q.4 (a) Define Intangibles and explain in detail the reasons to Conduct Intangible Valuation 07
(b) Following is the balance sheet of Hypo Company Limited as on March 31, the current 07
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 2
Trade creditors 71
Provision for income tax 8
282 282
Additional Information:
(i) A firm 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.
OR
Q.4 (a) With reference to Accounting Standard-14, discuss in brief different methods of 07
amalgamation and conditions for the same if any
(b) Following information is available for PQR Ltd Profit before tax for current year-end 07
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.

Q.5 (a) Company X wishes to takeover Company Y. The financial details of the two companies 14
are as under:
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 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 X could make to Company Y in terms of exchange
ratio, based on (a) net asset value; (b) earnings per share; and (c) market price per share?
(d)Which method would you prefer from Company X’s point of view

OR

Q.5 (a) Balance sheet of XYZ Limited as on March 31 (current year) is as follows: 14
Liabilities Amount Assets Amount
Equity share capital 10 lakh
shares @ Rs 20 each) 200 Plant and machinery 250
Furniture and fittings 5
13% Debentures 100 Inventories 90
Retained earnings 50 Debtors 25
Creditors and other current
liabilities 30 Bank balance 10
380 380

(i) 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 14
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 1 100
2 135
3 175
4 200
5 80
(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.

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