Question Bank End term

Strategic Financial Management

1. a. State the number ways that a firm can be acquired and different types of mergers (3marks) II-3,4 b. Firm A plans to acquire firm B. The relevant financial details of the two firms, prior to the merger announcement are A B Market price per share Rs.50 Rs.20 Number of shares 1,000,000 500,000 Market value of the firm Rs.50 mln Rs.10 mln The merger is expected to bring gains which have a present value of Rs.10 mln. Firm A offers 250,000 shares in exchange for 500,000 shares to the shareholder of firm B. Compute NPV to A and NPV to B (7 marks) II-169 to 172 c. i. write a note on business alliance and its common forms (5 marks) II123 to 127 ii. discuss SEBI takeover and the purpose of its guidelines (5 marks) II-111 to 115 2. a. State the takeover restrictions (3marks) II-102 b. Explain different types of acquisitions (7 marks) II-4 to 10 c. i. Write a note on discounted cash flow approach for valuing firms (5 marks) III-33 to 36 ii. write a note anti-takeover defence in India (5 marks) II-121,122 3. a. What do you understand by divestitures (3marks) II-138,139 b. Visdesh ltd is keen on reporting an earnings per share of Rs.6 after acquiring Swadesh ltd. The following financial data are given; Videsh Swadesh Earnings per share Rs.5.00 RS.5.00 Market price per share Rs.60.00 Rs.50.00 Number of shares 1,000,000 800,000 There is an expected synergy gain of 5 %. What exchange ratio will result in a post-merger earnings/share of Rs. 6 for Videsh ltd (7 marks) II-174 c. Discus guidelines for corporate valuation (10 marks) III-37 to46

4. a. Explain the term Cater to managerial self interest (3marks) II-32 b. write a note on adjusting book value to reflect replacement cost and liquidation values (7 marks) III-8 to14 c. Alpha corpn. Plans to acquire Beta corpn. The following information is available; Alpha Beta Total current earnings E Rs. 50 mln Rs.20 mln Number of outstanding shares S 20 mln 10 mln Market price per share P Rs.30 Rs.20 i. What is the maximum exchange ratio acceptable to the shareholders of Alpha corpn, if the P/E ratio of the combined entity is 12 and there is no synergy gain? ii. what is the minimum exchange ratio acceptable to the shareholders of Beta corpn., if the P/E ratio of the combined entity is 11 and there is a synergy benefit of 5% iii. assuming that there is no synergy gain, at what level of P/E multiple will the lines ER1 and ER2 intersect? (10 marks) II-181,182 5. a. state the broad approaches to valuation (3marks) III-2 b. Black & co. plans to acquire white & co. The relevant financial details of the two firms prior to the merger announcement are: Black White Market price per share Rs.70 Rs.32 Number of outstanding shares 20 mln 15 mln The merger is expected to generate gains which have a present value of Rs. 200mln. The exchange ratio agreed to is 0.5. what is the true cost of merger from the point of view of Black & co.? ( 7 marks) II-177 c. write a note on forms of demerger and equity carve out (10 marks) II-145 to 149 6. a. explain demerger (3marks) II-144 b. The following financial information is available for company D, a pharma co. Profit before depreciation interest and taxes (PBDIT); Rs 17.5 mln Book value of assets; Rs.90 mln Sales: Rs. 130 mln

Based on an evaluation of several pharma companies A, B and C have been found to be comparable to company D. the financial information of these companies are given below; A B C PBDIT* 12 15 20 Book value of assets* 75 80 100 Sales * 80 100 160 Market value (MV) 150 240 360 MV/PBDIT 12.5 16.0 18.0 MV/book value 2.0 3.0 3.6 MV/sales 1.9 2.4 2.3 * Rs. In Million With the given information find the value of company D. (5 marks) III-29 to 31 c. i. write a note on partial sell off (10 marks) II-140 to 143 ii. Explain the three steps of structuring the acquisition (5 marks) II65,66

Compulsory
7. Discuss in detail valuing a firm for acquisition (20 marks) II-39 to 50 or 8. write a detailed note on direct comparison approach while valuing a firm (20 marks) III-17 to 27 9. a. state categories of anti-takeover defences (3marks) II-116 b. write a note on diversify to reduce risk (7 marks) II-24,25 c. state pre-takeover and post takeover defences practiced (10 marks) II-116 to 120 10. a. why is revaluation necessary? (3marks) III-47 b. write a note on take over poorly managed firms and change management (7 marks) II-30,31 c. what is the role played by accounting considerations in acquisitions (10 marks) II-81 to 93 11. a. why equity carve out is resorted to (3 marks) II-149 b. why do mergers fail (7 marks) II-97 to101 c. b. Write a note on Empirical evidence On the Value Effects of takeovers and mention basic steps in acquisition (7 marks) II-18 to 20

12.a. what is leveraged buyout (3 marks) II-154 b. write a note on takeovers and its pro and cons (7 marks) II-10 to 105 c. write a note on biases and common errors, and misuse of multiples during takeover valuation of firms (10 marks) II- 51 to 56 13. a. what is business process re-engineering (3marks) II-165 b. discuss which approach to follow while making payments to target firm (7 marks) II-77 to 80 c. Write a note on mismatching inputs during the takeover valuation (10 marks) II-57 to 63 14. a. explain enterprise resource planning (3marks) IIb. what is the objective of revaluation, and concept and measure of revaluation (7 marks) III-77 to 82 c. Discuss Deciding on an acquisition price (10 marks) II-66 to72 15. a. Important difference between cash and stock compensation: (3marks) II-173 b. write a note on payment for the target firms(7 marks) II_72 to 76 c. write a detailed note on ownership restructuring (10 marks) II-150 to 157 16. a. how is finished goods inventory valued (3marks) III-10 b. write a note on regulation of takeovers (7 marks) II-106 to 111 c. what are the advantages and disadvantages of holding company(10 marks) II-158 to 161 17. a. Firm A has a value of Rs.20 mln and firm B has a value of Rs.5 mln. If the two firms merge, cost savings with a present value of Rs.5 mln would occur. Firm A proposes to offer Rs. 6mln cash compensation to acquire firm B. Calculate NPV of the merger of the two firms (3 marks) II-168 c. write a note on organistional restructuring (10 marks) II-162 to167 18 a. what are non-operating assets (3 marks) III-12 b. Write a note on acquiring an undervalued firm (7 marks) II-21 to 23 c. Explain process of acquisition (7 marks) II-12 to 17 19. a. explain stock and debt approach (3 marks) III-15

b. write a note on adjusted book value approach (7 marks) III-3 to 7 c. write a note on creating operating or financial synergy (10 marks) II-26 to 29 20.a. state the commonly used basis for revaluing assets (3 marks) III-81 b. c. discuss Choosing a target firm for acquisition (10 marks) II-34 to 38 21.a. state myths and reality surrounding valuation (3 marks) III-75 b. What makes a business alliance succeed and what do you understand by Strategic and operational plans, and deal structuring (7 marks) II-132 to 137 c. discuss rationale for business alliance (10 marks) II-138 to 142