Download BU (Bangalore University) MBA (Master of Business Administration) 3rd Semester 2019 Feb Corporate Valuation And Restructuring Question Paper
Ill Semester MBA. Degree Examination, January/February 2019
(CBCS Scheme)
(2014 ? 15 & Onwards)
Management
PJ ? 689
Paper ? 3.3.3 -? CORPORATE VALUATION AND RESTRUCTURING
Time : 3 Hours
SECTION - A
Max. Marks : 70
Answer any five of the following questions. Each question carries equal marks.
PWNT?
What is Tobin?s Q ? Discuss its importance.
(5x5=25)
What are the important value drivers of EVAs and its application ?
What are the various forms of Demergers ? Discuss.
Distinguish between price and value. Discuss the concepts of Market value,
Intrinsic value and Replacement value.
A company is currently paying the dividend of Rs. 2 per share. The dividend is
expected to grow at a 15 % annual rate for 3 years, then at 10 % rate for the
next 3 years, after which it is expected to grow at a 5 % rate forever ?
a) What is the present value of the share it the capitalization rate is 9 %' ?
b) If the share is held for 3 years, what shall be its present yalue ?
The market price of a bond is Rs. 883.40 (Face value being 1000). The bond
will pay interest at 6 % per annum for 5 years, after which it will be redeemed
at par. What is the bonds rate of return ? What is meant by YTM ?
Following is the condensed income statement of a firm for the current year :
Income Statement (in Rs. Lakhs)
Sales Revenue 500
Operating costs 300
Interest costs 12
Earnings before tax 188
Taxes @ 40 ?/o 75.2
Earnings after taxes 112.8
The firm?s existing capital consists of Rs. 150 lakh equity funds, having 15
percent cost and Rs. 100 lakh 12 percent debt. Determine the economic value
added during the year. Assume the sales revenue is Rs. 330 Lakhs. What is
the earnings after tax and EVA ?
P.T.O.
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SECTION ? B
Answer any three of the following questions. Each question carries equal
marks. (3x10=30)
8. Novelty Ltd., a consumer durable manufacturer, reported earnings per share
of Rs. 3.20 in 2010 and paid dividends per share of Rs. 1.70 in that year. The
firm reported depreciation of Rs. 350 lakh in 2010 and capital expenditure of
Rs. 475 lakh. There were 160 lakh outstanding shares traded at Rs. 51 per share.
The ratio of capital expenditure to depreciation?s expected to be maintained
in the long term. The working capital needs are negligible. Novelty had a debt
outstanding of Rs. 1,600 lakh and intends to maintain its current financing mix
od debt and equity to finance future investment needs. The firm in the steady
state and earnings are expected to grow at 7 % per year. The stock had a Beta
of 1.05, the Treasury bill rate is 6.25 ?/o and the market premium is 5.5 %.
Requirements :
i) Estimate the value per share using the dividend discount model.
ii) Estimate the value per share, using the FCFE model (Free Cash Flow to
Equity). .
iii) How would you explain the difference between the two models and which
one would you use as a benchmark to compare with the market price ?
9. Yes Ltd. wants to acquire No Ltd. and the cash flows of Yes Ltd. and the merged
entity are given below :
Year 1 2 3 4 5
Yes Ltd. 175 200 320 340 350
Merged entity 400 450 525 590 620
Earnings would have witnessed 5 % constant growth rate without merger and
6 % with merger on account of economies of operations after 5 years in each
case. The cost of capital is 15 %. The number of shares outstanding in both
the companies before the merger is the same and the companies agree to an
exchange ratio of 0.5 shares of Yes Ltd. for each share of No Ltd. PV factor at
15 ?/o for years 1 ? 5 are 0.870, 0.756, 0.658, 0.572, 0.497 respectively.
You are required to :
i) Compute the value of Yes Ltd. before and alter merger.
ii) Value of acquisition and
iii) Gain to shareholders of Yes Ltd.
PJ - 689
10. What are the various implications of corporate restructuring ? Discuss its various
types with suitable example.
11. Write short notes on :
1) Direct comparison approach of business valuation.
2) Strategic motives behind mergers.
Case Study (Compulsory).
SECTION ? C
(15x1=15)
12. Funtime Ltd. a toy manufacturing company has aggressive plans of expanding
its share market. To get faster market access the management of the company
has decided in favour of takeover. The research wing of Funtime limited has
undertaken a detailed study of prospective takeover targets and finally identified
Giggle Ltd.?, a company based in Baroda. Funtime Ltd. has already collected the
following relevant information about Giggle Ltd. it is now to assess the value of
Giggle?s to start negotiation for the takeover and Growth Rate (GR) is 16 %.
Balance Sheet of Giggle Ltd. as on 31st March, 2010
Liabilities
Share capital
Reserves
Term Loan :
IDBI
Other
Current Liabilities
Rs.
10
76
1 00
20
300
506
Assets
Land
Buildings
Plant and Machinery
Other fixed assets
Gross Fixed Assets
Less : Accumulated Depreciation
Add : Capital WIP
Total fixed assets
Inventories
Receivables
Other
Rs.
4
40
100
150
64
86
16
102
120
160
124
506
PJ ? 689
Capital expenditure of Rs.
in 2012
Other information :
Particulars
Net Sales
Raw materials cost
Power .
Employee related cost
Administrative Expenses
Depreciation
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86 lakhs will be incurred in 2011 and Rs. 280 lakhs
(Rs. Lakhs)
2010 2011 2012 2013 2014 2015
1,100 1,160 1,600 2,100 2,400 2,500
480 500 660 880 940 960
20 23 32 43 44 48
56 61 80 88 100 1 1 0
21 24 32 37 39 41
10 14 41 42 42.4 42.8
The tax rate for the company is 30 %. There is no charge on deferred taxes.
The stock is currently trading at Rs. 25 per share. The cost of the equity is 20 %.
Bank Finance carries an in
terest rate of 2O %. Based on the information given
use the discounted cash ?ow approach to value Giggle Ltd.
Note : Additional capital (issued at par) Rs. 260 Lakhs
Term Loan Rs. 220 Lakhs.
This post was last modified on 28 January 2020