CAIIB Paper 3 Module C Quiz 7

An increase ties up cash in receivables or inventory net of payables, so it is deducted in the cash-flow calculation. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.

Depreciation is a non-cash accounting expense; it is added back, while actual capital expenditure is deducted separately. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.

CAPM cost of equity = risk-free rate + beta × market risk premium = 8% + 1.4 × 5% = 15.0%.

WACC = 0.60×14% + 0.40×8%×(1−25%) = 10.8%. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.

Equity value = enterprise value − debt + cash = ₹650 − ₹130 + ₹35 = ₹555 crore, ignoring other claims.

Apply the stated multiple: ₹18 crore × 13 = ₹234 crore. The result is indicative and depends on comparability and earnings quality.

Apply the stated multiple: ₹18 crore × 13 = ₹234 crore. The result is indicative and depends on comparability and earnings quality.

Useful comparables have similar business models, growth, margins, risk, capital intensity and accounting; industry label alone is not enough. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.

Gordon value = next dividend/(required return − growth) = ₹7/(15% − 3%) = ₹58.33 per share. Required return must exceed growth.

Adjusted net asset or liquidation value can be informative when the going-concern assumption is weak. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.

Fair value is a market-participant exit price in an orderly transaction at the measurement date, not necessarily a forced-sale price. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.

Control may enable strategic decisions, operational changes and synergies; the premium is justified only if benefits support the price. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.

Restricted or illiquid shares may take longer and cost more to sell; any discount should be evidence-based and avoid double counting risk. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.

Savings from removing duplicate operating costs are cost synergies. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.

Cross-selling that increases sales is a revenue synergy, subject to customer and execution assumptions. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.

It tests earnings quality, cash flows, debt-like items, working capital, accounting policies and liabilities before price and terms are finalised. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.

Legal diligence reviews contracts, title, litigation, licences, compliance and change-of-control clauses. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.

The buyer purchases ownership interests in the target entity; the entity continues to hold its assets and liabilities, subject to deal terms and law. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.

An asset deal can allow selection of assets and assumed liabilities, although transfers, consents, tax and other consequences need review. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.

A horizontal merger combines firms at the same stage of an industry; competition review may be important. In an exam scenario, state the relevant assumption and avoid double counting or mixing valuation bases.