C CA Final FR Test Series (Old)

Question 1

The majority shareholders of MSL Limited desire to sell their holdings to Influx Funds.
The following information has been provided by MSL Limited:

₹ in lacs

Particulars 2012 2013 2014

Equity and Liabilities
12,000 Equity shares of ₹ 100 each 12.00 12.00 12.00

General Reserve 6.85 7.75 9.00

Profit and Loss Account 2.64 5.95 8.25
Current Liabilities 6.80 5.45 3.85
28.29 31.15 33.10
Assets
Tangible Assets 12.00 13.00 14.00
Intangible Assets
Goodwill 6.30 5.30 4.30
Current Assets
Inventories 6.28 7.34 8.51
Other Current Assets 3.71 5.51 6.29
28.29 31.15 33.10

(i) The valuation of tangible assets has been done by a professional valuer and increase
of 10% in year 2011-12 and 2012-13 and 12.5% in 2013-14 is estimated over the given book
value.

(ii) The inventories have been valued at ₹ 6.32 lacs as on 31 st March 2012, ₹ 8.47 lacs as

on 31st March 2013 and ₹10.68 lacs as on 31st March, 2014.

C CA Final FR Test Series (Old)

(iii) The company has been charging depreciation @ 10% p.a.

(iv) The balance of Profit and Loss account and General Reserve on 1 st April, 2011 was ₹
2.18 lacs and ₹ 4.25 lacs respectively.

(v) Tax rate was 30% in all the years.

(vi) The goodwill shall be revalued based on 4 years purchase of average super profits of
last three years.

(vii) The normal expectation in the industry is 10%.

Calculate the fair value of shares of MSL Limited. (16 Marks)

Question 2

Rough-use Ltd. has hired a Marketing Consultancy Firm for doing market research and
provide data relating to Tyre Industry for the next 10 years. The following were the
observations and projections made by the consultancy firm:

1. The Tyre Industry in the target area i.e. whole of India is expected to grow at 5% per
annum for the next 3 years, and thereafter at 7% per annum over the subsequent seven
years.

2. The market size in terms of unencumbered basic sales of tyres was estimated at ₹
8,000 crores in the last year, dominated by medium and large players. This includes
roughly 10% of fake brands and locally manufactured tyres. Market share of this
segment is expected to increase by 0.5% over the decade.

3. Cheap Chinese Imports accounted for 40% of the business (but 60% of the volume)
last year. This is expected to be increase by 0.25% over the next decade.

4. The other large players accounted for roughly 34% of the business value last year,
which is expected to go down by 0.5% over the next ten years, due to expansion of
Rough-use Ltd.’s product portfolio.

5. The Company is in the process of business process re-engineering, which will start
yielding results in 2 years time, and increase its profitability by 3% from its existing 8%.

What is the Brand Value of Rough-use Ltd., under Market Oriented Approach, if the
appropriate discount rate is 10%? (9 Marks)