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

 

  1. 408.10
  2. 418.10
  3. 498.10
  4. 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

 

  1. (804)
  2. (860)
  3. (864)
  4. (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:

  1. 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 

  2. Both the companies envisage a capitalization rate of 8%

  3. HLId has a contingent liability of R 300 crores as on 31s March, 2012.

  4. 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

 

  1. H Ltd: 215.71 , B Ltd: 40.46
  2. H Ltd: 215.71 , B Ltd: 48.46
  3. H Ltd: 285.71, B Ltd: 48.46
  4. 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:

  1. 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 

  2. Both the companies envisage a capitalization rate of 8%

  3. HLId has a contingent liability of R 300 crores as on 31s March, 2012.

  4. 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:

 

  1. H Ltd: 1171.43, B Ltd: 102.31
  2. H Ltd: 1071.43, B Ltd: 192.31
  3. H Ltd: 1175.43, B Ltd: 102.31
  4. 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:

  1. 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 

  2. Both the companies envisage a capitalization rate of 8%

  3. HLId has a contingent liability of R 300 crores as on 31s March, 2012.

  4. 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.)

 

  1. 0.1087
  2. 0.1717
  3. 0.1607
  4. 0.1787

Answer: 4

 

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