MCQ for CA Final SFM - Chapter 8 Corporate Valuation
Sample Multiple Choice Questions (MCQ's) for CA Final - Paper 2 - Strategic Financial Management - Chapter 8: Corporate Valuation - For Practice relevant for May/Nov 23 Examinations
Q:1 ABC Company is considering acquisition of XYZ Ltd. which has 1.5 crores shares outstanding and issued. The market price per share is ₹ 400 at present. ABC's average cost of capital is 12%. Available information from XYZ indicates its expected cash accruals for the next 3 years as follows
Year |
₹ Cr |
1 |
250 |
2 |
300 |
3 |
400 |
Calculate the range of valuation that ABC has to consider. (PV factors at 12% for years 1 to 3 respectively: 0.893, 0.797 and 0.712).
Calculate Maximum RANGE OF VALUATION per share
- 408.10
- 418.10
- 498.10
- 481.10
Answer: 3
Q:2 ABC Co. is considering a new sales strategy that will be valid for the next 4 years. They want to know the value of the new strategy. Following information relating to the year which has just ended, is available
Income Statement |
₹ |
Sales |
20,000 |
Cross margin (20%) |
4,000 |
Administration, Selling & distribution expense (10%) |
2,000 |
PBT |
2.000 |
Tax (30%) |
600 |
PAT |
1,400 |
Balance Sheet Information |
|
Fixed Assets |
8,000 |
Current Assets |
4,000 |
Equity |
12,000 |
If it adopts the new strategy, sales will grow at the rate of 20% per year for three years.
From 4 year onward Cash Flow will be stabilized. The gross margin ratio, Assets turnover ratio, the Capital structure and the income tax rate will remain unchanged.
Depreciation would be at 10% of net fixed assets at the beginning of the year.
The Company's target rate at return is 15%
Calculate Projected Operating cash flow(FCFF) for Year 2
- (804)
- (860)
- (864)
- (834)
Answer: 3
Q:3 H Ltd. agrees to buy over the business of B Ltd. effective 1t April, 2012.The summarized Balance Sheets of H Ltd. and B Ltd. as on 31 March 2012 are as follows:
Balance sheet as at 31st March, 2012 (In Crores of Rupees)
Liabilities: |
H. Ltd |
B. Ltd. |
Paid up Share Capital- Equity Shares of ₹ 100 each- Equity Shares of ₹ 10 each |
350.00_ |
_6.50 |
Reserve & Surplus |
950.00 |
25.00 |
Total |
1,300.00 |
31.50 |
Assets: |
||
Net Fixed Assets |
220.00 |
0.50 |
Net Current Assets |
1,020.00 |
29.00 |
Deferred Tax Assets |
60.00 |
2.00 |
Total |
1,300.00 |
31.50 |
H Ltd. proposes to buy out B Lid. and the following information is provided to you as part of
the scheme of buying:
-
The weighted average post tax maintainable profits of H Ltd. and B Ltd. for the last 4 years are ₹ 300 crores and ₹ 10 crores respectively
-
Both the companies envisage a capitalization rate of 8%
-
HLId has a contingent liability of R 300 crores as on 31s March, 2012.
-
H Ltd. to issue shares of 100 each to the shareholders of B Ltd. in terms of the exchange ratio as arrived on a Fair Value basis. (Please consider weights of 1 and 3 for the value of shares arrived on Net Asset basis and Earnings capitalization method respectively for both H Ltd. and B Ltd.)
You are required to arrive at the value of the shares of both H Ltd. and B Ltd. under:
Net Asset Value Method
- H Ltd: 215.71 , B Ltd: 40.46
- H Ltd: 215.71 , B Ltd: 48.46
- H Ltd: 285.71, B Ltd: 48.46
- H Ltd: 215.71, B Ltd: 45.46
Answer: 3
Q:4 H Ltd. agrees to buy over the business of B Ltd. effective 1t April, 2012.The summarized Balance Sheets of H Ltd. and B Ltd. as on 31 March 2012 are as follows:
Balance sheet as at 31st March, 2012 (In Crores of Rupees)
Liabilities: |
H. Ltd |
B. Ltd. |
Paid up Share Capital- Equity Shares of ₹ 100 each- Equity Shares of ₹ 10 each |
350.00_ |
_6.50 |
Reserve & Surplus |
950.00 |
25.00 |
Total |
1,300.00 |
31.50 |
Assets: |
||
Net Fixed Assets |
220.00 |
0.50 |
Net Current Assets |
1,020.00 |
29.00 |
Deferred Tax Assets |
60.00 |
2.00 |
Total |
1,300.00 |
31.50 |
H Ltd. proposes to buy out B Lid. and the following information is provided to you as part of the scheme of buying:
-
The weighted average post tax maintainable profits of H Ltd. and B Ltd. for the last 4 years are ₹ 300 crores and ₹ 10 crores respectively
-
Both the companies envisage a capitalization rate of 8%
-
HLId has a contingent liability of R 300 crores as on 31s March, 2012.
-
H Ltd. to issue shares of 100 each to the shareholders of B Ltd. in terms of the exchange ratio as arrived on a Fair Value basis. (Please consider weights of 1 and 3 for the value of shares arrived on Net Asset basis and Earnings capitalization method respectively for both H Ltd. and B Ltd.)
You are required to arrive at the value of the shares of both H Ltd. and B Ltd. under:
Earnings Capitalisation method:
- H Ltd: 1171.43, B Ltd: 102.31
- H Ltd: 1071.43, B Ltd: 192.31
- H Ltd: 1175.43, B Ltd: 102.31
- H Ltd: 1271.43, B Ltd: 152.31
Answer: 2
Q:5 H Ltd. agrees to buy over the business of B Ltd. effective 1t April, 2012.The summarized Balance Sheets of H Ltd. and B Ltd. as on 31 March 2012 are as follows:
Balance sheet as at 31st March, 2012 (In Crores of Rupees)
Liabilities: |
H. Ltd |
B. Ltd. |
Paid up Share Capital- Equity Shares of ₹ 100 each- Equity Shares of ₹ 10 each |
350.00_ |
_6.50 |
Reserve & Surplus |
950.00 |
25.00 |
Total |
1,300.00 |
31.50 |
Assets: |
||
Net Fixed Assets |
220.00 |
0.50 |
Net Current Assets |
1,020.00 |
29.00 |
Deferred Tax Assets |
60.00 |
2.00 |
Total |
1,300.00 |
31.50 |
H Ltd. proposes to buy out B Lid. and the following information is provided to you as part of the scheme of buying:
-
The weighted average post tax maintainable profits of H Ltd. and B Ltd. for the last 4 years are ₹ 300 crores and ₹ 10 crores respectively
-
Both the companies envisage a capitalization rate of 8%
-
HLId has a contingent liability of R 300 crores as on 31s March, 2012.
-
H Ltd. to issue shares of 100 each to the shareholders of B Ltd. in terms of the exchange ratio as arrived on a Fair Value basis. (Please consider weights of 1 and 3 for the value of shares arrived on Net Asset basis and Earnings capitalization method respectively for both H Ltd. and B Ltd.)
You are required to arrive at the value of the shares of both H Ltd. and B Ltd. under:
Exchange ratio of shares of H Ltd. to be issued to the shareholders of B Ltd. on a Fair value basis (taking into consideration the assumption mentioned in point 4 above.)
- 0.1087
- 0.1717
- 0.1607
- 0.1787
Answer: 4
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