FINAL EXAMINATION SET 1

MODEL QUESTION PAPER

PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

Time Allowed: 3 Hours Full Marks: 100

The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.

SECTION – A : STRATEGIC PERFORMANCE MANAGEMENT

Answer to Question No. 1 and 5 are compulsory; answer any two from Question No. 2, 3 & 4.

1. (a) Choose the correct alternative. Provide justification in each case. 1 mark is
allotted for correct selection and 1 mark for the justification.: [5 × 2 = 10]

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(i) Which one of the following is not a form of Customer Relationship
Management (CRM) and why?
a.
b.
c.
Strategic CRM
Operational CRM
Analytical CRM
tu
sti
d. Tactical CRM
(ii) The prices which are fixed and enforced by the Government and regulatory
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in nature, is called _____________. Provide a brief justification.

a. Dual Pricing
b. Administered Pricing
c. Shadow Pricing
C

d. Multiple Product Pricing

(iii) Which one of the below mentioned in not a modern theory of the firm? Why?
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a. Baumol’s sales maximisation

b. Shareholder’s wealth maximisation
c. Marri’s model of maximisation of Firm’s Growth rate
d. Williamson’s model of managerial discretion
(iv) The total revenue function and the total cost function for a firm the
following is given as under
Total revenue (TR) = 4000Q – 33Q2 and
Total cost (TC) = = 2Q3 – 3Q2 + 400Q + 5000,
Assuming Q > 0, the maximum profit of the firm is
a. ` 39,000
b. ` 93,000
c. ` 52,000
d. ` 25,000

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

(v) The Average Cost of a firm is given by the function,

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑜𝑠𝑡 = 𝑥 3 + 12𝑥² – 11𝑥, then the marginal cost will be:
a. 4𝑥 3 + 36𝑥 2 – 22𝑥
b. 𝑥 4 + 12𝑥 3 – 11𝑥 2
c. 2𝑥 2 + 24𝑥 – 11
d. 𝑁𝑜𝑛𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑎𝑏𝑜𝑣𝑒.

2. (a) What are the components of the decision grid analysis (DGA)? Illustrate the four
segments of a decision grid along with explanation. [3+4=7]

(b) Answer both the questions:

(i) ‘With the advent of big data and its implication for the business Analytical

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Customer Relationship Management (CRM) has gained strategic importance’
– explain.
(ii) “Balanced Score Card (BSC) can be used to improve strategic performance
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in several ways.” — Examine the areas where BSC can be used to improve
performance of an organisation. Write down the steps in developing Balanced
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Score Card. Discuss the information to be required for performance
measurement under Balanced Score Card with reasons. [3+6=9]
In

3. (a) The following is the excerpts from the financial records of Tinku LLP and Pinku
LLP. You are required
 to calculate the ROE of both the companies for both the years and
C

 analyse the performance of the two companies on the basis of the DuPont
analysis
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` in Thousands
Tinku LLP Pinku LLP.
2021 2022 2021 2022
Net Income 1,000 1,200 2,100 2,100
Revenue from operation 10,000 10,000 17,500 17,500
Revenue from operation 10,000 10,000 17,500 17,500
Average Assets 5,000 4,800 8,750 8,750
Average Assets 5,000 4,800 8,750 8,750
Average Equity 2,000 2,000 5,000 3,500
[6+4=10]
(b) Answer both the questions:
(i) What is Six Sigma? Is Six Sigma a part of Total Quality Management?
(ii) Critically analyse the two methodologies for deployment of Six Sigma. [6]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

4. (a) Sulekha Inc. produces particular Fountain Pen Ink. It follows a price differentiation
strategy and separately brands the same product. Thus for Sulekha Inc. there arises
possibility of discriminating between two markets; market A and market B where
the demands (for the same ink), respectively, are
Q1 = 21- 0.1P1 ------ (in Market A)
Q2 = 50 - 0.4 P2 ------ (in Market B)
Total cost = 2000+10Q where Q = Q1+ Q2.
I. Suggest the price the producer will charge in order to maximize profits in the
following situations:
(i) with discrimination between markets and
(ii) without discrimination?

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(II) Compare the profit differential between discrimination and
nondiscrimination. [4+4+1=9]

(b) tu
From the following ascertain the stage of sickness and comment on this
Balance Sheet (extract) of Q Ltd. as on 31 March 2023
sti
Liabilities ` in Crores Assets ` in Crores
Equity Shares 20.80 Fixed Assets 105.60
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Long term Liabilities 104.00 Current Assets 57.60

Current Liabilities 78.40 Profit and Loss Account 40.00
203.20 203.20
Additional Information:
C

(i) Depreciation written off ` 8 crores.

(ii) Preliminary Expenses written off ` 1.60 crores.
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(iii) Net Loss ` 25.60 crores.

Ascertain the stage of sickness using the NCAER model. [7]

5. Mr Sharma, a Cost Accountant by profession is an independent financial analyst. He

extracted the respective ratios (Note 1) and calculated the overall Altman Z-score for
Enron Corporation during the period 1996 to 2000 which is given as under (Table 1)
Years 1996 1997 1998 1999 2000
XI 0.020 0.01 (0.01) 0.02 0.04
X2 0.174 0.11 0.11 0.11 0.07
X3 0.253 0.08 0.18 0.20 0.13
X4 0.565 0.469 0.663 0.922 0.724
X5 0.823 0.90 1.06 1.20 1.54
Score 1.84 1.58 2.00 2.45 2.49
Source: Enron Corp Data from US SEC Edgar (1996-2000)

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

Note 1
𝑁𝑒𝑡 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
𝑋1 = 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠
𝑋2 = 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑏𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑇𝑎𝑥𝑒𝑠
𝑋3 = 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦
𝑋4 = 𝐵𝑜𝑜𝑘 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑆𝑎𝑙𝑒𝑠
𝑋5 =
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
Z = Overall Index = = 1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 + 0 .999 X5

Mr Sharma also extracted the respective ratios (see note below) and calculated the

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Beneish M-Score for Enron Corporation during the period 1996 to 2000 which is given
as under (Table 2);

Index Non-Manipulator tu
Manipulator
sti
DSRI I.030 1.460
GMI 1.041 1.190
AGI 1.040 1.250
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SGI 1.134 1.610

DEPI I.001 1.077
SGAI 1.001 1.041
C

LVGI I.037 1.111

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TATAI 0.01B 0.031

Source: Source: Adapted from Beneish M-score model

Where,
Beneish M-score = − 4.84 + 0.92 × 𝐷𝑆𝑅𝐼 + 0.528 × 𝐺𝑀𝐼 + 0.404 × 𝐴𝑄𝐼 +
0.892 × 𝑆𝐺𝐼 + 0.115 × 𝐷𝐸𝑃𝐼 – 0.172 × 𝑆𝐺𝐴𝐼 – 0.327 × 𝐿𝑉𝐺𝐼 + 4.679 ×
𝑇𝐴𝑇𝐴

Note 2
𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 (𝑡)
⁄𝑆𝑎𝑙𝑒𝑠 (𝑡)
DSRI - Days’ Sales in Receivables Index = 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 (𝑡−1)
⁄𝑆𝑎𝑙𝑒𝑠 (𝑡−1)

𝑆𝑎𝑙𝑒𝑠 (𝑡)−𝐶𝑜𝑠𝑡 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠 (𝑡)

⁄𝑆𝑎𝑙𝑒𝑠 (𝑡)
GMI - Gross Margin Index =𝑆𝑎𝑙𝑒𝑠 (𝑡−1)−𝐶𝑜𝑠𝑡 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠 (𝑡−1)
⁄𝑆𝑎𝑙𝑒𝑠 (𝑡−1)

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 (𝑡)−𝑃𝑃𝐸 (𝑡)

⁄𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 (𝑡)
AQI - Asset Quality Index = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 (𝑡−1)−𝑃𝑃𝐸 (𝑡−1)
⁄𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 (𝑡−1)

𝑆𝑎𝑙𝑒𝑠 𝑜𝑟 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 (𝑡)

SGI - Sales Growth Index = 𝑆𝑎𝑙𝑒𝑠 𝑜𝑟 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 (𝑡−1)
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝑡)
⁄𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛+𝑃𝑃𝐸 (𝑡)
DEPI - Depreciation Index = 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 (𝑡−1)
⁄𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛+𝑃𝑃𝐸 (𝑡−1)

SGAI - Sales, General, and Administrative Expenses Index

𝑆𝑎𝑙𝑒𝑠,𝑑𝑖𝑠𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑎𝑛𝑑 𝑎𝑑𝑚𝑖𝑛𝑖𝑠𝑡𝑟𝑎𝑡𝑖𝑣𝑒 𝑐𝑜𝑠𝑡 (𝑡)
⁄𝑆𝑎𝑙𝑒𝑠 (𝑡)
=𝑆𝑎𝑙𝑒𝑠,𝑑𝑖𝑠𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑎𝑛𝑑 𝑎𝑑𝑚𝑖𝑛𝑖𝑠𝑡𝑟𝑎𝑡𝑖𝑣𝑒 𝑐𝑜𝑠𝑡 (𝑡−1)
⁄𝑆𝑎𝑙𝑒𝑠 (𝑡−1)
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
LVGI - Leverage Index = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

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𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙−𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
TATA - Total Accruals to Total Assets = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

You, as a new recruit, have been asked by Mr Sharma to

i.
tu
Determine the value of overall Altman Z-score and Beneish M Score of the
company from the given information and formulea.
sti
ii. Interpret the above results and formulate two separate sets of action points which
the company should execute to improve both the scores. [8]
In

SECTION – B : BUSINESS VALUATION

Answer to Question No. 6 and 10 are compulsory; answer any two from Question No. 7, 8 & 9.
C

6. (a) Choose the correct alternative. Provide justification in each case. 1 mark is
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allotted for correct selection and 1 mark for the justification.: [5 × 2 = 10]

(i) Which of the following would impact DCF more and why?
a. Discount rate.
b. Sales growth.
c. Both above.
d. None of the above.

(ii) Which of the following types of items are least likely included in other
comprehensive income and why?
a. Loss under the revaluation.
b. Unrealized gains on equity shares.
c. Realized gains on securities classified as available for sale.
d. All the above

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

(iii) Mr. X is evaluating the investment merits of Bing Corp., a successful

motorcycle manufacturer. X is forecasting a dividend in year 1 of INR 120
per share, a dividend in year 2 of INR 240 per share, and a dividend in the
year 3 of INR 360 per share. After year 3, X expects dividends to grow at a
rate of 6% per year. X calculates a beta of 1.3 for Bing. X expects the BSE
index return 8%. The risk free rate of return is 2%. Using the multistage
dividend discount model, X’s intrinsic value is closest to:
a. INR 8166.4
b. INR 2366.6
c. INR 9166.4
d. None of the above.

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(iv) Tangible assets are usually valued using any of the premises except _______.
Why?
a. Forced sale
b.
c.
Going concern
Orderly liquidation
tu
sti
d. Highest and best use
(v) The value of Alpha ltd. and Beta ltd. are INR 50 lac and INR 25 lac
respectively. On merger their combined value INR 94 lac. If Beta ltd.
In

Receives premium on merger INR 15 lac, what will be the synergy gain on
merger?
a. INR 19 lac
C

b. INR 24 lac
c. INR 34 lac
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b. None of the above

7. (a) What is Enterprise Value? Explain its components and significance?

(b) Mr A is a shareholder of S Pvt Ltd. He is planning to sell his shares. He has engaged
you to assess the Fair Market Value of S Pvt Ltd as on 31.3.2023 under Rule 11UA
of Income Tax Rules.
The Balance sheet of the company as on the 31st March 2023 is as follows-
Liabilities INR Assets INR
Equity Share Capital 50,01,12,400 Tangible Assets 92,80,88,839
Reserve & Surplus 12,26,03,279 Non-Current Investments 25,00,000
Long- term Capital Work-in-
86,18,20,170 9,79,46,867
Borrowings progress

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

Long term Loans &

Deferred Tax Assets 3,30,53,680 2,08,32,646
Advances
Short Term
27,41,38,266 Inventories 76,55,82,793
Borrowings
Trade Payables 26,38,76,597 Trade Receivables 17,11,31,446
Other Current Cash & Cash
20,87,20,117 15,45,04,345
Liabilities Equivalents
Short Term
92,72,645 Other Current Assets 13,30,10,218
Provisions
TOTAL 2,27,35,97,154 TOTAL 2,27,35,97,154

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Additional information:
1. Tangible Assets includes Land which is recorded in the books at its book

2.
is estimated to be INR 12.5 Crore. tu
value of INR 10 Crore. As per the Government records, its Stamp Duty value

Non-Current Investments represents investment in 25000 shares of Z Pvt Ltd.

sti
Mr A has provided a valuation report from a Chartered Accountant that shows
that the value of Z Pvt Ltd under Rule 11UA was INR 79 per share.
In

3. The Paid-up value of Equity Share is INR 10/-

Suggest with supporting calculations, the Fair Market Value of S Pvt. Ltd.
[9+7=16]
C

8. (a) Spectacular Ltd. is considering evaluating its brand value.

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It has projected the revenues for the next 5 years as follows-

Year Revenue (`)

1 6,84,000
2 6,97,680
3 7,11,634
4 7,25,866
5 7,40,384

The Royalty rate for similar businesses is 10%. The company believes that the
brand specific revenue is 3% of the Royalty factor. Assuming that the company will
not enjoy superior brand power for more than 5 years, and a discount rate of 12%,
what should be the value of the brand?

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

(b) The following information is available to you in relation to the acquisition of Dean
Limited and the target Dale Limited.

Particulars Dean Limited Dale Limited

Earnings after tax (INR) 284 lacs 30 lacs
Number of shares outstanding 30 lacs 10 lacs
P/E ratio 10 5
Analyse the above information to determine the following:
(i) the swap ratio in terms of current market prices.
(ii) the EPS of Dean Limited after acquisition.
(iii) the expected market price per share of Dean Limited after acquisition
assuming that P/E ratio of Dean Limited remains unchanged.

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(iv) the market value of the merged firm.
(v) the gain/loss for shareholders of the two independent companies after

9. (a)
acquisition. tu [7+9=16]

How will you calculate Economic Value Added and Market Value Added? How are
sti
Economic Value Added and Market Value Added related to each other?

(b) You have been engaged to value Excel Ltd. which is a potential target for Gama
In

Ltd.
You have received the management forecasted financial statements the extract of
which is given below.
C

Amount in INR Lakhs 2023 2024 2025 2026 2027

Revenues 12000 12960 13997 15117 16326
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Cost of Goods sold 7200 7776 8475 9238 10069

Gross Profit 4800 5184 5522 5879 6257
General Expenses 1344 1452 1582 1725 1880
Depreciation 420 454 494 539 587
EBIT 3036 3278 3446 3615 3790
Net Interest Expenses 556 528 502 477 453
EBT 2480 2750 2944 3138 3337
Taxes 868 963 1030 1098 1168
PAT 1612 1788 1914 2040 2169

Additional Information:
Change in Non-Cash Working Capital 384 415 452 493 537
Capex 1104 1192 1300 1417 1544

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

On further inquiry and assessment, you discovered that applicable tax rate would
be 35%, the cost of capital that may be used for discounting is 9.5% and the long-
term growth forecast for the company may be taken at 6%.
Required:
Analyse the Enterprise Value of Gama Ltd. [8+8=16]

10. Following are the financials of Summer Ltd. and Monsoon Ltd. for the current financial
year. Both the firms operate in the same industry:
Balance Sheet as on 31st March 20X2
Particulars Summer Ltd. Monsoon Ltd.
Total Current Assets 14,00,000 14,00,000

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Total Fixed Assets 24,00,000 10,00,000
Total Assets 38,00,000 24,00,000
Equity Capital (of INR 10 each)
Retained earnings
14% Long-term debt
tu 14,00,000
2,00,000
10,00,000
12,00,000

7,00,000
sti
Total Current Liabilities 12,00,000 5,00,000
Total Liabilities 38,00,000 24,00,000
In

Income Statement for the year ended 31st March 20X2

Particulars Summer Ltd. Monsoon Ltd.
Net sales 44,50,000 27,00,000
C

Cost of goods sold 37,60,000 24,00,000

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Gross Profit 6,90,000 3,00,000

Operating expenses 2,00,000 1,00,000
Interest 50,000 50,000
Earnings before taxes 4,40,000 1,50,000
Taxes (40%) 2,64,000 90,000
Earnings after taxes (EAT) 1,76,000 60,000

Additional Information:
Number of equity shares 8000 7000
Dividend pay-out ratio (D/P) 40% 60%
Market price per share (MPS) 300 100
Assume that the two firms are in the process of negotiating a merger through an exchange
of equity shares. You have been asked to assist in establishing equitable exchange terms,
and are required to-

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

(i) Decompose the share prices of both the companies into EPS and P/E components,
and also segregate their EPS figures into return on equity (ROE) and book
value/intrinsic value per share (BVPS) components.
(ii) Estimate future EPS growth rates for each firm.
(iii) Based on expected operating synergies, Summer Ltd. estimates that the intrinsic
value of Monsoon Ltd.’s equity share would be INR 200 per share on its
acquisition. You are required to develop a range of justifiable equity share exchange
ratios that can be offered by Summer Ltd. to Monsoon Ltd.'s shareholders. Based
on your analysis in parts (i) and (ii) would you expect the negotiated terms to be
closer to the upper, or the lower exchange ratio limits? and why?
(iv) Calculate the post-merger EPS based on an exchange ratio of 0.4:1 being offered

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by Summer Ltd. Indicate the immediate EPS accretion or dilution, if any, that will
occur for each group of shareholders.
(v) Based on a 0.4:1 exchange ratio and assuming that Summer Ltd.’s pre-merger P/E
tu
ratio will continue after the merger, estimate the post-merger market price. Show
the resulting accretion or dilution in pre-merger market prices. [8]
sti
In
C
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Directorate of Studies, The Institute of Cost Accountants of India