CAIIB Paper 3 Module C Quiz 2

The buyer purchases ownership interests in the target entity; the entity continues to hold its assets and liabilities, subject to deal terms and law.

An asset deal can allow selection of assets and assumed liabilities, although transfers, consents, tax and other consequences need review.

A horizontal merger combines firms at the same stage of an industry; competition review may be important.

A vertical merger integrates different stages of the same supply chain.

A conglomerate merger combines businesses in unrelated industries; diversification alone does not guarantee value creation.

Exchange ratio = target price ÷ acquirer price = ₹80/₹160 = 0.50 acquirer shares per target share.

Premium = (offer − unaffected price)/unaffected price × 100 = (100 − 80)/80 × 100 = 25%.

Percentage change = (post EPS − standalone EPS)/standalone EPS × 100 = (8.80 − 8)/8 × 100 = 10% accretion.

Goodwill = consideration − fair value of identifiable net assets = ₹300 − ₹250 = ₹50 crore, subject to applicable accounting rules.

Incremental NPV = PV benefits − PV costs = ₹120 − ₹100 = ₹20 crore.

An earn-out makes part of consideration depend on future performance, helping bridge buyer/seller expectations but potentially creating disputes.

Consideration is allocated to identifiable acquired assets and assumed liabilities at acquisition-date fair values; residual goodwill may arise.

Early planning supports systems, people, customer and synergy execution, while respecting competition-law restrictions on pre-closing coordination.

An LBO finances a significant part of the acquisition with debt, relying on cash flows and/or assets for debt service, subject to structure and law.

A divestiture is disposal of a business, subsidiary or asset, often to sharpen focus or raise capital.

A higher discount rate reduces present value of future cash flows, all else equal.

Terminal value = next-period cash flow/(WACC − g); increasing sustainable growth narrows the denominator and increases value.

Forecasts, discount rates, comparable selection and transaction assumptions are uncertain; a range communicates uncertainty and avoids false precision.

It compares actual outcomes with the deal thesis, forecast and synergy targets, identifying lessons for future transactions.

FCFF is available to both debt and equity providers, so it is discounted at WACC to estimate enterprise value. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.