Seat No.: ________ Enrolment No.
______________
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA– SEMESTER - IV-EXAMINATION- SUMMER-2023
Subject Code: 4549222 Date: 27/06/2023
Subject Name: Corporate Restructuring 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.
4. Use of simple calculators and non-programmable scientific calculators are permitted.
Q.1 Define: 14
1) Vertical Merger
2) Going private
3) Pac-man and White Knight
4) Amalgamation
5) Escrow Account
6) Buy-back through book building
7) ESOP
Q.2 (A) Define corporate restructuring and what are various implications of corporate 07
restructuring?
Q.2 (B) Define Cross border expansion. Discuss Reasons and benefits of Cross border 07
expansion.
OR
Q.2 (B) A company issues 1000 equity shares of Rs 100 each at a premium of 10%. The 07
company has been paying 20% dividend to equity shareholders and expecting to
keep same performance in future years. Compute the cost of equity capital will it
make any difference if the market price of equity share is Rs 160?
Q.3 (A) Following are the particulars of two companies, A ltd and B ltd. You are required 07
to calculate exchange ratio and value of firm based on the market price. Consider
A ltd as acquirer & B ltd as Target firm.
Particulars A ltd B ltd
EAT 2,00,000 60,000
No of Equity Share 8,000 4,000
Outstanding
P/E Ratio 8 5
(B) Why do Firms Merge? And why do M & A quite often fail? Discuss. 07
OR
Q.3 (A) What are the main Powers of the Court with regards to sanctioning the scheme 07
of amalgamation? Discuss
(B) A ltd is considering takeover of B ltd and C ltd. The financial data for the three 07
companies are as follows.
Particulars A ltd B ltd C ltd
Equity Share Capital of Rs 10 each 450 180 90
Earnings 90 18 18
Market price of each share 60 37 46
Calculate:
1) Price earnings ratios
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2) Earnings per share of A ltd after the acquisition of B ltd and C ltd
separately. Will you recommend the merger of either/ both of the
companies? Justify your answer.
Q.4 (A) Discuss various pre offer and post offer anti takeover Defense strategy 07
(B) Following are the Balance sheets of ABC ltd and XYZ ltd AS ON 31st March,2021 07
Particulars ABC ltd XYZ ltd
1) Equity and Liabilities
i) Shareholders’ funds
a) Shares capital
• Equity shares of Rs 10 5,00,000 4,00,000
b) Reserve and Surplus
• Revenue reserve 1,75,000 25,000
ii) Non-current Liabilities
a) 9% debentures 1,00,000 50,000
iii) Current liabilities
a) Sundry Creditors 60,000 45,000
b) Provision for taxation 40,000 25,000
Total 8,75,000 5,45,000
2) Assets
i) Non- current Assets
a) Fixed assets 3,75,000 2,45,000
b) Investment 1,00,000 50,000
ii) Current Assets
a) Stock 2,15,000 1,40,000
b) Debtors 1,50,000 85,000
c) Bank Balance 35,000 25,000
Total 8,75,000 5,45,000
ABC ltd. takes over the business of XYZ ltd. on the following terms;
1) Fixed assets of ABC Ltd, and XYZ Ltd are to be considered worth ₹ 5,00,000
and ₹ 3,00,000 respectively
2) ABC ltd agreed to discharge 9% debentures of XYZ Ltd.
3) Shares of both the companies are to be valued on the basis of its intrinsic value.
Determine the ratio of exchange and calculate purchase consideration if:
1) Shares to be issued at par
2) Shares are to be issued on the basis of its intrinsic value.
3) Shares are issued on the basis of its market price of ₹ 20 each.
OR
Q.4 (A) Calculate the present value of the stock from the following formula: 07
i) A stock is expected to experience supernatural growth in dividend of 10% ,
g over the next five years
ii) Following this period, dividends are expected to grow at a constant rate of
4%, g.
iii) The stock paid a dividend of ₹4 last year.
iv) The required rate of return on the stock is 5%
(B) Explain the statement “Conglomerate firm shares tend to have higher market 07
value due to lower cost of capital”.
Q.5 CASE STUDY 14
A Ltd. is considering merger with B Ltd. Altd. Shares are currently traded at INR
20. It has 2, 50,000 shares outstanding and its EAT is INR 5, 00,000. B.Ltd. has
1, 25,000 shares outstanding and its current MPS is INR 10 and EAT is INR 1,
25,000. The merger will be effected by the means of stock swap. B. Ltd. has
agreed to plan under which A ltd, will offer the current market value of B Ltd.
shares.
Questions:
1. What is the pre-merger EPS and P/E of both companies.
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2. If B Ltd., P/E ratio is 6.4 what is the current market price? What is the exchange
ratio? What will be A Ltd. Post merger EPS will be?
3. What should be the exchange ratio, if ALtd. Pre-merger and post-merger EPS
are to be same?
OR
Q.5 CASE STUDY 14
In 2018, the Vraj ltd had revenues of 16 crore on which it earned 7 crore before
interest and taxes. It had capital expenditure of 530 lac and depreciation of 410
lac in 2018.working capital as a percentage of revenue, averaged at 5% between
2017 and 2018(working capital increases by 150 lac in 2018) the beta of
comparable firms in the industry is 1.05 and the average debt ratio of this firms
is 24.79%(the cost of debt for the largest of this firms is approx 8%).The long
term bond rate is 7.5% and market premium is 5.5%.tax rate is assumed to be
30%.FCFF is expected to grow 5% a year in the long term. Compute the value of
the firm
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