Mergers, Acquisitions and Corporate Restructuring

Assignment – Week 1
1. Which one of the following is not an inorganic growth strategy?
a. Product innovation
b. Joint venture
c. Mergers & Acquisitions
d. Strategic alliance

Explanation: A company can grow internally by expanding product lines, exploring

untapped markets, or acquiring another business, while inorganic growth occurs through
mergers and acquisitions, joint venture, strategic alliance.

2. The word “Amalgamation” in India can be related to which of these terms?

a. Acquisition
b. Takeover
c. Joint venture
d. Merger

Explanation: Generally, “Amalgamation” and “Merger”, both terms are used

interchangeably in the context of the business combination by way of Merger. The other
three concepts like Acquisition, Takeover, and Joint venture have different meanings.

3. What does "synergy" mean in mergers and acquisitions?

a. Increase in company profits

b. Tax benefits from mergers
c. Combined value greater than the sum of individual values
d. Cost reduction strategies

Explanation: The word "synergy" in the context of mergers and acquisitions refers to the
idea that the performance and value of two companies taken together will be higher than
the sum of their respective parts.

4. A friendly takeover is when offer is made without approval of the board.

a. True
b. False

Explanation: In friendly takeover an offer is made directly in approval with the Board.
5. Which is NOT a common reason for mergers and acquisitions?

A. Market expansion
B. Cost synergies
C. Brand dilution
D. Gaining competitive advantage

Explanation: Refer section motivations of M&A

6. What is a hostile takeover?
a. A merger between friendly companies
b. Acquiring a company against its management's wishes
c. Selling a company's assets to pay debts
 d. A joint venture between two firms

Explanation: A hostile takeover happens when an entity takes control of a company

without the knowledge and against the wishes of the company's management.

7. All of these are route of foreign direct investment in India except:

a. Automatic route
b. Government route
c. Restricted route
d. International Quota Route

Explanation: Refer to the section Cross Border Merger and Acquisition on slide no.4

8. Which of the following is a horizontal merger?

a. A car manufacturer merging with a tire producer
b. A pharma retailer merging with another pharma retailer
c. A bank merging with an insurance company
d. A software company merging with a hardware company

Explanation: A horizontal merger is a merger or business consolidation that occurs

between firms that operate in the same industry.

9. Which type of merger occurs between different stages of supply chain?

a. Vertical merger
b. Horizontal merger
c. Conglomerate merger
d. Market extension merger

Explanation: A vertical merger is the merger of two or more companies that provide
different supply chain functions for a common good or service.

10. The Securities and Exchange Board of India Act 1992 governs takeovers and acquisitions of
businesses in India (SEBI) through:
a. Competition Act, 2002
b. Income Tax Act, 1961
c. Companies Act, 2013
d. SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 2011

Explanation: Refer to the section “SEBI Guidelines for Takeover / Substantial

Acquisitions of Shares in India” PPT of 4th class of the First week.

11. Competition Act, 2002 does not regulate which one of the following:
a. Anti-competitive agreements
b. Abuse of dominant position in the market
c. Consolidation leading to monopoly creation
d. Monetary policies

Explanation: Refer to the section “Competition Act, 2002” PPT of 4th class of the First
week.

12. State whether the statement is True or False:

 Hubris hypothesis postulates that acquirers may become overly pessimistic when assessing
acquisition candidates.

a. True
b. False

Explanation: Refer to the section “Motivation of M&A” PPT of second class of First week.

13. Which among these is the successor to the Monopolies and Restrictive Trade Practices
(MRTP) Act, 1969

a. Competition Commission of India (CCI)

b. Competition Act, 2002
c. The Companies Act, 1956
d. Securities Exchange Board of India (SEBI)

Explanation: Refer to the section “Competition Act, 2002” PPT of 4th class of the First week.

14. Which one of the following is not related to Operational Synergy?

a. Economies of scale
b. Purchase of assets
c. Economies of scope
d. Complementary technical assets and skills

Explanation: Please refer to the section “What Causes M&A-The theories” PPT of third class of the
First week.

15. The following are important motives behind any mergers and acquisitions activity except:
a) Value creation through Synergy
b) To introduce environment friendly sustainable products
c) To gain market access (Geographic expansion)
d) To eliminate competition and enjoy monopoly

Explanation: Refer to the section “Motivation of M&A” PPT of second class of First week. Although
it is good for a company to introduce environment friendly sustainable product to the market, but it is
never a motive for M&A activity.
 Mergers, Acquisitions and Corporate Restructuring
Assignment – Week 2
1. What is a "bear hug" in takeover tactics?
A. A formal merger agreement
B. A hostile takeover bid with high premium
C. A friendly acquisition offer
D. A tender offer for minority shares

Explanation: A bear hug is an offer by acquirer to buy target’s shares with a

premium to the existing market price and does not have the approval of the target’s
management.

2. A "Godfather offer" in a takeover refers to:

A. An offer that cannot be refused due to its premium
B. A conditional offer based on performance metrics
C. An offer for partial equity only
D. A secretive merger negotiation tactic

Explanation: An offer with a very high premium so that target’s shareholders cannot
refuse to accept.

3. What is the purpose of a poison pill defense tactic?

A. Increase market share
B. Make a takeover prohibitively expensive
C. Reward employees for a merger
D. Reduce operational inefficiencies

Explanation: poison pills are used to dissuade the attackers by making the offer
expensive

4. What does a "golden parachute" involve?

A. Special rewards to shareholders
B. Large compensation packages for executives in case of acquisition
C. Tax benefits for the merged entity
D. Employee stock ownership plans

Explanation: The key executives of the target have the option to leave the company
with a very high severance package thus making it costly for the acquirer.

5. What is a "people pill" tactic?

A. Threatening mass resignations to prevent a takeover
B. Restructuring financial statements
C. Engaging in a hostile proxy contest
D. Offering shares to employees

Explanation: A people poison pill is a defensive strategy that involves a target's

management team vowing to all resign if an unwanted takeover deal should happen.
6. What is an LBO?
A. Leveraged Buyout using significant borrowed funds
B. Large Buyback Offer for public shareholders
C. Listing Before Ownership transfer
D. Lease Back Option agreement

Explanation: A leveraged buyout (LBO) is the acquisition of one company by

another using a significant amount of borrowed money or debt to meet the cost of
acquisition.

7. MBO refers to:

A. Buyout by existing management team
B. Merger and Buyout Options for shareholders
C. Multiple Buyout Offers to rivals
D. Management Borrowing Opportunity
Explanation: The strategy is where the management (executives) of the operating
company pool resources and acquire the controlling interest of the target firm from
its existing shareholders.

8. Which factor is NOT part of Porter’s Five Forces?

A. Bargaining power of suppliers
B. Threat of substitutes
C. Organizational culture
D. Intensity of rivalry

Explanation: Refer slide no. 8 of lecture no. 9

9. The BCG Growth-Share Matrix categorizes businesses into:

A. Leaders, challengers, followers, and niche players
B. Core, non-core, strategic, and operational
C. Profitable, break-even, and loss-making
D. Stars, cash cows, dogs, and question marks

Explanation: Refer slide no. 8 of lecture no. 9

10. What is a "due diligence disaster"?

A. Overpricing the acquisition deal
B. Failure to uncover key risks in an acquisition
C. Regulatory intervention post-merger
D. Shareholder opposition to the deal

Explanation: Refer slide no.10 of lecture no. 9

11. Greenmail refers to:

A. Paying off a potential acquirer to drop a hostile bid
 B. Increasing dividends to shareholders
C. Reducing debt-to-equity ratio
D. Merging with an unrelated company

Explanation: Greenmail is money that is paid to another company to prevent

aggressive behavior (i.e., an unwanted takeover).

12. Which among these is a Reactive Tactics (Post bid Defenses)?

A. Asset lockups
B. Equity lockups
C. Counter-tender (Pac-Man Defense)
D. Toehold stakes
Explanation: Except Counter-tender (Pac-Man Defense) other three are the Deal
Embedded Defenses.

13. Proactive Defenses consist of all these except:

A. Poison Pills
B. Poison Puts
C. Golden Parachute
D. Dawn Raid
Explanation: Dawn Raid is one of the takeover attack tactics while others are defense
tactics.

14. Financial Conditions that Make Firms Vulnerable to Takeover, except:

A. A small percentage is owned by incumbent management
B. Less liquid balance sheet
C. Good cash flow to stock price
D. Low market-to-book ratio
Explanation: please refer to slide no 5 of session 7.

15. _________ is the gradual purchase of the target company's shares.

A. Creeping acquisition
B. Proxy contest
C. One-tiered tender offer
D. Two-tiered tender offer

Explanation: A creeping acquisition strategy involves buying target business

shares gradually. It aims to take control of the target by gradually buying shares
on the open market.
 Mergers, Acquisitions and Corporate Restructuring
Assignment – Week 3
1. What does "terminal value" represent in DCF?
A. Value at the start of the projection
B. Present value of perpetual cash flows after the forecast period
C. Sum of all discounted cash flows
D. Residual cost after depreciation

Explanation: "Terminal value" represent Present value of perpetual cash flows after
the forecast period.

2. In a DCF analysis, which discount rate is commonly used?

A. WACC
B. Cost of equity
C. Prime lending rate
D. Treasury bond rate

Explanation: In a DCF analysis, Weighted average cost of capital is commonly used

for discounting.

3. Which of these is NOT a step in DCF valuation?

A. Projecting cash flows
B. Selecting comparable companies
C. Determining terminal value
D. Discounting cash flows to the present value

Explanation: Selecting comparable companies is step of relative valuation technique.

4. Which among these is an undervalued firm?

A. Market price > Intrinsic value
B. Market price < Intrinsic value
C. Market price = Intrinsic value
D. No intrinsic value

Explanation: When the market price of a share is less than its intrinsic value, it is
called an undervalued share.

5. As per the capital asset pricing model:

A. Ke = Rf + βe * Rm
B. Ke = Rf – βe * (Rm – Rf)
C. Ke = Rf + βe * (Rm+ Rf)
D. Ke = Rf + βe * (Rm – Rf)

Explanation: Refer to the section “Cost of Equity (Ke) – CAPM” of session 13

6. Net operating profit after tax (NOPAT) can be calculated as:
A. NOPAT = Earnings before interest and tax (EBIT) x (1 + Tax rate)
B. NOPAT = Earnings before interest and tax (EBIT) x (1 – Tax rate)
C. NOPAT = Earnings before interest and tax (EBIT) x (Tax rate)
D. NOPAT = Earnings before interest and tax (EBIT) x interest rate

Explanation: Refer to the section “Concept of free cash flow” of session 14.
7. As per CAPM (capital asset price model), find the cost of equity (Ke) from the given
inputs: Rf (risk-free rate of return) =10%, Rm (market rate of return) = 15%, βe (beta of
the stock) = 2
A. 14%
B. 15%
C. 19%
D. 20%

Explanation: 10%+2*(15%-10%) = 20%

8. The capital structure of SBS ltd. includes equity of 5,000 shares @ Rs 10 and long-
term debt of Rs.1,50,000. If the cost of equity is 15%, and the post-tax cost of long-
term debt 10%, calculate the WACC of the company:
A. 11.25%
B. 14%
C. 15%
D. 16%

Explanation: WACC = Kd*Wd + Ke*We = 10%*(Rs.1,50,000/

(5,000*Rs.10+Rs.1,50,000)) + 15%*(Rs. 50,000/ (Rs. 50,000+Rs.1,50,000)) =
7.5%+ 3.75%= 11.25%

9. Levered beta of the share, Debt-equity ratio and tax rate for a company are 1.5, 0.6
and 20% respectively. Find the unlevered beta.
A. 1.999
B. 1.888
C. 1.013
D. 0.555

Explanation: Unlevered Beta = 1.5/ [1+(1-.20) *0.6] = 1.013

10. Calculate present market price of equity share using Zero-Growth model. Given,
expected dividend per share Rs 2, Cost of equity is 5%.
A. Rs.400
B. Rs.40
C. Rs.4
D. Rs.24
 Explanation: P0= D/Ke = Rs.2/5%= Rs.40

11. Price-earnings multiple is a method of Discounted cash flow valuation. State whether
the statement is true or false:
A. True
B. False

Explanation: Refer to slide # 9 of session # 11.

12. The capital structure of CSM ltd. includes equity of 10,000 shares @ Rs 10 and long-
term debt of Rs. 1,20,000 and preference capital of 1,80,000. If the cost of equity is
16%, and the post-tax cost of long-term debt 12%, cost of preference share is 14%.
calculate the WACC of the company:
A. 15.30%
B. 13.90%
C. 14.30%
D. 18.30%

Explanation: WACC = Kd*Wd + Ke*We + Kp*Wp = 12%*(120,000/

(120,000+10,000*10+180000)) + 16%*(1,00,000/ (4,00,000) +
14%*(180,000/ 400000) = 3.6%+4%+6.3%= 13.9%

13. The retention ratio can be calculated by:

A. Dividend payout ratio minus 1
B. 1 minus return on equity
C. 1 minus Dividend pay-out ratio
D. 1 minus retained earnings

Explanation: The retention ratio is the percentage of net income kept by the
company as retained earnings whereas the Dividend payout ratio is the
remaining portion of net income paid to shareholders as dividends.

14. Which factor would NOT impact WACC?

A. Interest rate changes
B. Tax rate changes
C. Dividend payout ratio
D. Debt-to-equity ratio

Explanation: Dividend payout ratio is not used in the calculation of WACC

15. Relative valuation uses which of the following as a basis?

A. Intrinsic value
B. Comparable companies' market metrics
C. Terminal growth rates
D. Discount rates
Explanation: Refer to session # 11.
 Mergers, Acquisitions and Corporate Restructuring
Assignment – Week 4
1. What does FCFF measure?
A. Cash flow available to equity holders only
B. Cash flow available to both equity and debt holders
C. Operating profit after taxes
D. Net income plus depreciation

Explanation: Free cash flow to firm indicates both equity and debt holders.

2. Given EBIT = Rs.500, Tax rate = 30%, Depreciation = Rs.50, CAPEX = Rs.100, and change in
working capital = Rs.30, calculate FCFF.
A. Rs.235
B. Rs.270
C. Rs.285
D. Rs.300

Explanation: FCFF=EBIT * (1 – T) +Depreciation –Capx – +/- Change in net working capital

= 500*(1−0.3)+50−100−30=270

3. If FCFF = Rs.200, WACC = 10%, growth rate = 4%, calculate the terminal value (perpetual
growth method).
A. Rs.3,000.67
B. Rs.3,333.33
C. Rs.3,466.67
D. Rs.4,000.67

Explanation: TV=200×(1+0.04)/(0.1−0.04)=3,466.67

4. Given FCFF = Rs.250, Interest expense = Rs.20, Tax rate = 25%, Net debt repayment = Rs.30,
calculate FCFE.
A. Rs.165
B. Rs.175
C. Rs.185
D. Rs.205

Explanation: FCFE=FCFF−Interest(1−T)−Net Debt Repayment=250−20(1−0.25)−30=Rs.205

5. If operating synergies reduce costs by Rs.50 million annually, and the WACC is 8%, what is
the present value of synergies (perpetual)?
A. Rs.500 million
B. Rs.625 million
C. Rs.700 million
D. Rs.750 million
 Explanation: PV=50/0.08=625

6. A firm’s total assets = Rs.1,500 million, total liabilities = Rs.900 million, and preferred stock =
Rs.200 million. Calculate the book value of equity.
A. Rs.300 million
B. Rs.400 million
C. Rs.500 million
D. Rs.600 million

Explanation: BookValue=TotalAssets−TotalLiabilities−PreferredStock=1,500−900−200=
Rs.400 million

7. A firm’s EBITDA is Rs.300 million, industry EV/EBITDA multiple is 8x. Calculate the
enterprise value.
A. Rs.2,200 million
B. Rs.2,400 million
C. Rs.2,500 million
D. Rs.2,700 million

Explanation: EV=EBITDA×Multiple=Rs.300 million ×8=Rs.2,400 million

8. Two firms merge, with combined pre-merger value = Rs.1,500 million, and synergies estimated
at Rs.400 million. The transaction cost is Rs.100 million. What is the net value of the merger?
A. Rs.1,600 million
B. Rs.1,700 million
C. Rs.1,800 million
D. Rs.1,900 million

Explanation:NetValue=Pre−mergerValue+Synergies−TransactionCost=1,500+400−100=Rs.1,
800

9. A firm’s P/E ratio is 15, and its net income is Rs.20 million. Calculate the equity value.
A. Rs.200 million
B. Rs.250 million
C. Rs.300 million
D. Rs.350 million

Explanation: EquityValue=NetIncome×P/E ratio =20×15=300

 10. Which one of the following is not true about Synergy?
A. Synergy is the additional value that is generated by combining two firms, creating
opportunities that would not been available to these firms operating independently.
B. One of the purposes behind a Merger and Acquisition deal is the synergy attributable to
the deal to both companies after the deal
C. 𝑉𝐴𝐵 > 𝑉𝐴 + 𝑉𝐵
D. 𝑉𝐴 + 𝑉𝐵 > 𝑉𝐴𝐵

Explanation: Synergy means, when combined, producing a total effect that is greater than the sum of
the individual elements.
11. Two companies X and Y got merged. Prior to the merger X and Y had total capital (debt and
equity together) of Rs. 2,000 crore each. and the combined company XY has a total capital of
Rs. 4,000 crore. The pre-merger weighted average cost of capital (WACC) of A and B were
13% and 14% respectively. Post merger the combined company’s WACC is estimated at 12%.
Find the net present value of synergies
A. Rs.500 Crore
B. Rs.300 Crore
C. Rs.240 Crore
D. Rs.250 Crore

Explanation: Cost of capital of firm X and Y independently = Rs.2,000 crore *13% + Rs.2,000
Crore* 14% = Rs.260 Crore +Rs.280 Crore = Rs.540 Crore
Cost of capital of the merged firm = Rs.4,000 Crore *12% = Rs.480 Crore
So, net impact = Rs.540 Crore – Rs.480 Crore = Rs.60 Crore
Present value of synergy (Using perpetuity formula) = Rs.60 Crore / 0.12 = Rs.500 Crore
12. Better borrowing power in view of the bigger size of the combined company is called the
Coinsurance effect. State whether the statement is True or False.
A. True
B. False
Explanation: Refer to Page -7 of Session 18.
13. Which one of the following is not related to Financial Synergy?
A. Reduction in the borrowing cost, i.e. interest rate
B. Reduction in the cost due to economies of scale and scope, spreading of costs, sharing
of resources
C. Reduction in overall risk leading to lower cost of equity
D. Reduction in the weighted average cost of capital (WACC)

Explanation: Reduction in the cost due to economies of scale and scope, spreading of
costs, and sharing of resources is an example of Operating Synergy.
14. Financial synergies result from:
A. Higher tax rates
B. Reduced cost of capital or increased debt capacity
C. Enhanced operational efficiencies
D. Reduction in market competition

Explanation: Financial synergies occur when the merged firm is able to better improve its
capital structure compared to when the companies were separate.

15. Among the following, which one is not true while valuing the Intangible assets?
A. Market Approach - when an active market is available for the intangible asset
B. Cost approach: The expected amount to be incurred to develop a similar intangible asset
in its present form adjusting for any depreciation or obsolescence.
C. Zero Approach – The price of goodwill will be considered zero.
D. Income approach: The present value of expected cash flows or future cost savings due
to ownership of the intangible asset. This is adjusted for any future cost and discounting
factor.

Explanation: Refer to Page -12 of Session 20.

 Mergers, Acquisitions and Corporate Restructuring
Assignment – Week 5

1. What is the primary purpose of Comparable Company Analysis?

a. Predicting future performance
b. Assessing a company's relative valuation compared to peers
c. Building a discounted cash flow financial model
d. Evaluating dividend yield
Explanation: The primary purpose of Comparable Company Analysis is to assess a
company's relative valuation compared to peers.

2. Approaches to Equity valuation include all except:

a. Price to book multiple
b. Price to cash flow multiple
c. Price to depreciation multiple
d. Price to earnings multiple
Explanation: Price to depreciation is not a relative valuation multiplier to value a firm.

Following is the information about GGP ltd company: 20,000 equity shares @Rs 10
each having a market capitalization of Rs.3,50,000 and 5,000 preference shares of
Rs.10 each, it has a profit after tax of Rs. 75,000. Assume tax @ 30%.
Co. announced a preference dividend of Rs.4 per share.
The following 2 questions are related to the above information:

3. Find the Earnings per share of the company

a. 3.75
b. 2.75
c. 3
d. 15
Explanation: EPS= (PAT-Preference dividend)/ no. of equity shares
= (75,000-(5,000*4))/20,000= 2.75
4. Find out the Price to earnings ratio of GGP co.
a. 2.75
b. 6.54
c. 21.42
d. 6.36
Explanation: P/E ratio= Market price per Share/earnings per Share
= (3,50,000/20,000)/2.75= 6.36
 5. Find the value of equity shares of GGP ltd. if
The P/E multiples of comparable companies in the same industry are: SBS ltd. 8, SKS
ltd. 6, MS ltd. 7.5, PP ltd. 6.5, SBM ltd. 5.5. The company has reported an Earnings
per share of Rs. 20
a. Rs.120
b. Rs.130
c. Rs.140
d. Rs.150
Explanation: Value of equity shares= Average P/E of multiple
companies*Earnings per share
=((8+6+7.5+6.5+5.5)/5)*Rs.20= Rs.134
6. Which is not a major concern for the P/E ratio:
a. It cannot be used for valuing the equity of loss-making companies.
b. P/E multiple does not consider the growth of the company or its earnings.
c. Companies with good profits always have good cash flow
d. A company’s assets can be financed with equity or equity and debt. A
company with more debt can be risky. The P/E ratio does not capture it.
Explanation: P/E ratio does not take Cash flows into consideration while valuing a firm.
7. Enterprise value of a firm is:
a. Enterprise Value = Free cash flow to firm + terminal value
b. Enterprise Value = Market value of Equity + Market value of Preference
Capital + Market value of Debt less cash and cash equivalents
c. Enterprise Value = Market value of Equity + Market value of Preference
Capital + Market value of Debt
d. Enterprise Value = Market value of Equity + Market value of Preference
Capital
Explanation: Enterprise value includes the Market value of Equity, Market value of
Preference Capital with Market value of Debt less cash and cash equivalents.

8. Which one of the following statements is not true about Start-Up?

a. Acquisition of talents
b. High gestation period
c. Small size team or management
d. Low gestation period
Explanation: A start-up company always exhibits low gestation period.
 9. In trading multiple approaches one should factor control premium separately for the
purpose of M&A valuation.
a. True
b. False
Explanation: Refer to the section “Transaction Multiples” in session-22

10. Which one of the following is not true about start-up Companies?
a. Period of existence and operations of the company should not be exceeding 10
years from the date of incorporation
b. Startups are formed by splitting up or reconstructing an already existing
business
c. Startups are incorporated as a private ltd company, registered partnership firm
d. should have an annual turnover not exceeding Rs. 100crore for any of the
financial years since its Incorporation
Explanation: Startup companies are always newly started from scratch.

11. Liquidity is the difficulty with which an investor can sell the assets with a significant
loss in the value.
a. True
b. False
Explanation: Liquidity is the ease with which an investor can sell the assets without a
significant loss in the value.

12. Which one of the following is not a pre-money valuation method without any
adjustment?
a. Recent transactions or deal method
b. Discounted Cash flow approach
c. Comparable company approach
d. Cayenne or Scorecard Method
Explanation: Refer to the section “Valuation of Start-ups – Alternative Approaches” in
session-23
The next two questions are related to the following information:
The average Beta(β) of listed FMCG companies is 2. The average Debt-Equity ratio is 0.20.
The tax rate is 30%. The average correlation of the FMCG sector with the market is 0.40. The
risk-free rate of return is 8% and the market rate of return is 15%.
 13. What is the value of Levered Beta?
a) 3.555
b) 5.255
c) 4.375
d) 6.525
Explanation: Unlevered Beta=2/(1+0.20*(1-0.30))=1.75
Levered Beta= 1.75/0.40=4.375
14. What is the Cost of Equity as per the CAPM method?
a. 28.625
b. 30.625
c. 38.625
d. 25.555
Explanation: cost of equity=8%+4.375*(15%-8%)= 38.625

15. Which one of the following is not a sign of accounting anomaly?

a. Decreasing the percentage of provision of bad debt in relation to revenue
b. Misclassification of revenue expenditure as capital expenditure and vice-versa
c. Change in statutory auditor with proper justification
d. Qualified audit report by the statutory auditor
Explanation: A change in statutory auditor with proper justification is not an accounting
anomaly. Refer to the section “Accounting anomalies in Target’s financial statement” in
session-25
 Mergers, Acquisitions and Corporate Restructuring
Assignment – Week 6

1. ZOPA stands for:

a. Zone of prior argument
b. Zone of portable agreement
c. Zone of possible agreement
d. Zone of possible argument
Explanation: ZOPA stands for Zone of possible agreement
2. Which one of the is not desirable in designing a deal:
a. The deal should signal to the capital market about the unstable future of the firm
b. To build employee morale
c. To preserve and improve competitive standing
d. To keep and adequately maintain the best intellectual capital of the firm
Explanation: A desirable feature while designing the deal is that it should send a positive
signal to the capital market about the bright future ahead for the firm

3. Which of these is not true about Mezzanine debt:

a. It is a layer of finance between senior debt and equity
b. It is usually unsecured
c. It can be in the form of convertible debt.
d. It usually carries a lower coupon rate
Explanation: Mezzanine debt usually carries a higher coupon rate.

4. Which of them is not true about Revolving credit facility:

a. It is mostly used for working capital financing and can be obtained against
receivables and inventory
b. Maximum limit is fixed by the lender
c. Interest is charged on the sanctioned amount.
d. Interest is charged on the actual amount borrowed
Explanation: Refer to the section “Different types of debt” of session 29

5. In FRICTO Framework, T stands for:

a. Target Company
b. Timing
c. Trade
d. Tax
Explanation: Refer to the section “FRICTO Framework” of session 29
 6. Which order among these is correct as per Pecking Order of Financing:
a. Cash-Debt-Treasury Stock-Preference share Capital-Equity share Capital-
Convertible debt
b. Cash-Treasury stock-convertible debt-equity share capital-preference share
capital-debt
c. Cash-Treasury Sock-Debt-Preference share capital-convertible debt-equity
share capital
d. Cash-treasury stock-debt-convertible debt-preference share capital-equity
share capital
Explanation: Refer to the section “Pecking order of Financing M&A” of session 29

7. Share Price of the Acquirer company at the time of announcement was Rs.500. Share
Price of the Target company at the time of announcement was Rs.200. Actual share
price of the Acquirer at the time of closing the deal was 600. what is the Share
Exchange Ratio on the date of the announcement?
a. 2.5:1
b. 3:1
c. 0.4:1
d. 0.33:1
Explanation: Share Exchange Ratio between Acquirer and Target at the time of
announcement = 200 : 500 i.e. 0.4 : 1

8. Which of the following statement is not true about Deal-design:

a. We should proceed with the deal once the target is fixed and deal design is
made irrespective of future consequences as a large part of the money is
invested in the search process.
b. Deal design is like an engineering problem, trying to optimize multiple
objectives with many constraints (a financial engineering problem!).
c. Deals try to provide solutions to economic problems. There are no “right”
deals, but there are lots of wrong ones
d. Deal design is also a bargaining problem, where the buyer and seller seek a
structure satisfying both sides.

Explanation: Although a large amount is invested in the search process, it’s always intuitive
and advisable to leave the deal which will cost a company heavily in the future.

9. Which among these is not desirable in designing a Deal

a. Preserve and improve the competitive standing
b. Manage signals to the capital markets
c. Improve control; avoid voting dilution.
d. Reduce financial flexibility
Explanation: Its always desirable in a deal design to builds financial flexibility for the
company.
 10. Which one of the following is a Contingent form of payment?
a. Bonus
b. Golden Parachute
c. Contingent value rights
d. Rights and Royalties
Explanation: Contingent value rights is a contingent form of payment.

11. From the following, which is not a type of Debt financing?

a. Mezzanine debt
b. Term Loan
c. Leveraged buy-out (LBO)
d. Preference share capital
Explanation: Preference share capital is not a type of debt financing.
12. M&A negotiation can go wrong in these situations except:
a. Adverse situation in capital market and / or economy
b. Unpleasant discoveries in the due diligence process
c. Non-approval by the regulators
d. Acceptance of M&A deal by the shareholders
Explanation: Acceptance of M&A deal by shareholder will lead to successful completion of
the deal
State whether the statement is True/False for the following questions:
13. Covenants are the restrictions imposed by the lender with respect to use of cash-flow,
further borrowing, dividend payment, disposal of assets.
a. True
b. False
Explanation: refer to the section “debt as a financing option” of session-29
14. Which one of the following statements is not true:
a. Bigger size targets (relative to buyers) are likely to have share for share
exchange. Similarly, small-size targets are more likely to have cash for share
deal
b. Hostile deals are likely to have share for share payment
c. Buyer companies with less liquidity are likely to opt for share for share
exchange.
d. More the valuation of acquiring company (relative to other companies in the
similar sector), the more likely the share-for-share payment
Explanation: Hostile deals are likely to have cash payment
15. In a contingent payment, the payment to be paid depends upon future events of the
company.
a. True
b. False
Explanation: In a contingent payment, the payment to be paid depends upon future events of
the company.
 Mergers, Acquisitions and Corporate Restructuring

Assignment 7

TYPE OF QUESTION: MCQ/MSQ

Number of questions: 15 Total mark: 15 X 1 = 15

1. The mergers or amalgamations are governed by provisions of different acts except:

a. Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011
b. The Companies Act, 2013 (Sections 230 to 240)
c. The Competition Act, 2002
d. The Income Tax Act, 1961

Explanation: Substantial Acquisition of Shares and Takeovers (SAST) Regulations,

2011 is not related to the Mergers or Amalgamations.

2. In an amalgamation, the amalgamated company survives whereas an Amalgamating

company does not survive. State whether this statement is true or false:
a. True
b. False

Explanation: In an amalgamation, the Amalgamated company survives whereas an

amalgamating company does not survive.

3. Which among the following is a commonly used measure of market concentration?

a. Capital asset pricing method (CAPM)
b. Fama-French Model
c. Herfindahl-Hirchman index (HHI)
d. Nifty 50 index

Explanation: Herfindahl-Hirchman index (HHI) is a commonly used measure of

market concentration.

4. The Competition Act, 2002 is regulated by:

a. Competition Board of India
b. Competition Commission of India
c. Reserve Bank of India
d. Securities and Exchange Board of India

Explanation: The Competition Commission of India regulates The Competition Act,

2002.

Page 1 of 4
5. The Competition Act, 2002 came into place replacing ________ in response to the
evolving nature of the global competitive environment and rising mergers and
Acquisitions trends in India:
a. Companies Act, 1956
b. Monopolies and Restrictive Trade Practices (MRTP) Act, 1969
c. The Income Tax Act, 1961
d. SARFAESI Act, 2002

Explanation: Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 was
replaced by The Competition Act, 2002.

6. Which of the following does not come under the scope of the Competition Act, 2002?
a. To prohibit the agreements or practices that have or are likely to have an
appreciable adverse effect on competition in a market in India, (horizontal and
vertical agreements/conduct)
b. To prohibit the abuse of dominance in a market
c. To prohibit acquisitions, mergers, amalgamations, etc. between enterprises
that have or are likely to have an appreciable adverse effect on competition in
market(s) in India.
d. To ensure financial stability and public confidence in the banking system

Explanation: Please refer session # 32

7. Which one of the following accounting standards is related to business combination?

a. IND AS 102
b. IND AS 103
c. IND AS 104
d. IND AS 16

Explanation: Please refer session # 34

8. A Ltd. acquires B Ltd. by purchasing 80% equity for ₹250 million in cash. The fair
value of the NCI in the business is valued at ₹210 million. The net aggregate value of
the identifiable assets and liabilities, was ₹200 million, as per IND AS 103. What is
the Non-controlling Interest (NCI) as per the proportionate share method?
a. ₹210 million
b. ₹40 million
c. ₹160 million
d. ₹50 million

Explanation: Non-controlling Interest (NCI) as per the Proportionate share method=

Net aggregate value of the identifiable assets and liabilities*(100%-80%)= ₹200 m*
20%= ₹40 million

Page 2 of 4
9. Alpha Ltd. acquires 100% of the equity of Gamma Ltd. on 31 March 2022. There are
two elements to the purchase consideration: an immediate payment of ₹200 million,
and further payments of ₹50 million if the return on capital employed (ROCE)
exceeds 10% in the subsequent financial year ending 31 March 2023. All indicators
have suggested that this target will be met. Alpha Ltd. uses a discount rate of 10% in
any present value calculations. Calculate the Purchase considerations to be paid by
Alpha Ltd.:
a. ₹245.45 million
b. ₹95.45 million
c. ₹250 million
d. ₹200.45 million

Explanation: The fair value of the contingent consideration (payment to be made if B

Ltd. achieves targeted ROCE) to be received after one year = ₹50m / 1.10 = ₹45.45
million. Total consideration = ₹200m + ₹45.45m = ₹245.45 million

10. Purchase Consideration can be defined as:

a. The net of acquisition date amounts of the identifiable assets acquired and the
liabilities assumed measured in accordance with IND AS 103.
b. Any agreement between businesses regarding the acquisition or control of
knowledge and information, the production, distribution, or purchase of goods
and services, which results in a monopoly
c. Any agreement in respect of production, supply, distribution, storage,
acquisition, or control of goods or provision of services, which causes or is
likely to cause an appreciable adverse effect (AAEC) on competition within
India
d. Aggregate of the shares and other securities issued and the payment made in
the form of cash or other assets by the transferee company to the shareholders
of the transferor company

Explanation: It can be defined as the “aggregate of the shares and other securities
issued and the payment made in the form of cash or other assets by the transferee
company to the shareholders of the transferor company”.

11. Market share of P,Q,R,S companies are as follows 40%, 25%, 20%, 15%. Calculate
the Herfindahl-Hirschman Index (HHI):
a. 2,850
b. 100
c. 1,600
d. 225

Explanation: HHI= [(40)2+(25)2+(20)2+(15)2] = 2,850

Page 3 of 4
12. Which of the following is not related to Takeover Code?
a. Takeover codes are prescribed in all major countries so as ensure a systematic
framework for acquisition of stocks in listed entities.
b. Takeover codes ensure that the public shareholders are treated fairly in
relation to a substantial acquisition in or takeover of a listed company.
c. The public shareholders should have fair exit option in the event of takeover.
d. Takeover Code prescribes regulation regarding smooth functioning of the
Mergers or Amalgamations.

Explanation: Takeover Code does not regulate Mergers or Amalgamations.

13. Abuse of Dominant position arises when an enterprise indulges in all of these except:
a. Directly or indirectly imposing discriminatory conditions in the purchase or
sale (including predatory price) of goods and services
b. Limiting the production of goods or provision of services.
c. Restricting technical or scientific development.
d. Any agreement in respect of production, supply, distribution, storage,
acquisition or control of goods or provision of services, which causes or is
likely to cause an appreciable adverse effect (AAEC) on competition within
India

Explanation: Please refer to the section (“Scope of the Competition Act , 2002”)in
session-32.

14. The Government of India has granted exemption to acquisition of small targets which
is known as de minimis exemption. State whether the statement is true or false?
a. True
b. False

Explanation: The Government of India has granted exemption to acquisition of small

targets which is known as de minimis exemption.

15. From the following information, calculate goodwill.

Purchase consideration: 7,00,000; Net assets taken over: ₹4,50,000; Liquidation
expenses paid: ₹75,000;
a. 2,50,000
b. 3,25,000
c. 1,75,000
d. 12,25,000

Explanation: Goodwill= purchase consideration-net assets taken over + Liquidation

expenses paid= (7,00,000-4,50,000+75,000) = 3,25,000

Page 4 of 4
 Mergers, Acquisitions and Corporate Restructuring

Assignment 8

TYPE OF QUESTION: MCQ/MSQ

Number of questions: 15 Total mark: 15 X 1 = 15
1. Which of these is not a form of corporate restructuring:
a. Organizational restructuring
b. Earnings restructuring
c. Financial restructuring
d. Portfolio restructuring

Explanation: Please refer session # 36

2. Corporate restructuring objectives of any organization includes all except

a. Enables a company to increase its reputation in the market
b. To make correct the previous wrong strategic decisions
c. Efficient allocation of existing resources
d. Development of core competencies

Explanation: Please refer to the point “Need for capital restructuring” in Session # 36.

3. Which one of the following is not related to Business Alliance?

a. It involves sharing the risk, reward, and control among the partners
b. It involves merging with another company from a different industry
c. It brings access to new markets, cost reduction, sharing management skills and resources
d. Success of business alliance requires the degree to which each partner is dependent upon
the abilities and resources of the other

Explanation: Business Alliance does not involve merging with another company, which is a
merger.

4. Which of the following is not a form of business alliance?

a. Strategic alliance
b. Hostile Takeover
c. Joint Venture
d. Licensing

Explanation: Form of business alliance consists of Joint Ventures, Strategic Alliances,

Licensing, Franchising.

5. Which of the following is not a characteristics of a joint venture?

a. Partners contribute money, property, effort, knowledge, skill, or other assets to a common
undertaking.
b. Ownership, risks, responsibilities, and rewards are shared by parties.
c. A joint venture may be formed as a corporation, partnership, or other legal/business
organization chosen by the parties.
d. In joint venture one company takes over another company.

Page 1 of 3
 Explanation: Please refer session # 37

6. Benefits of forming a strategic alliance do not include:

a. Access to knowledge, new technology, intellectual property rights
b. Letting each partner focus on their own competitive advantage
c. To access secret information of the other company
d. Opportunity to manage and achieve desired results from a corporate ecosystem

Explanation: Refer to session # 37

7. Which one among the following is not a Potential reason for corporate divestiture?
a. Abandoning the core business
b. Improved and Strong performance by firm
c. Reverse synergy
d. Poor performance

Explanation: Please refer session # 37

8. Which of the following does not include carving out multiple companies out of a single
company?
a. Split up
b. Spin off
c. Joint venture
d. Equity Carve-out

Explanation: In joint venture two companies join together to form a business for some specific
purpose.

9. Suppose a division of Company A is made a separate company called A1 and shareholders of A

are receiving shares in A1 proportional to their existing ownership in A. This scenario is an
example of:
a. Spin-off
b. Spilt-up
c. Split-off
d. Equity carve-out

Explanation: Please refer session # 38

10. A restructuring strategy in which a single corporation divides into two or more independently
controlled firms. After the split, the original company's shares are cancelled, and it no longer
exists.
a. Split off
b. Split Up
c. Spin off
d. Equity Carve-out

Explanation: Split up is described as a restructuring strategy in which a single corporation

divides into two or more independently controlled firms. After the split, the original company's
shares are cancelled, and it no longer exists.

Page 2 of 3
11. Value creation through Leveraged buy-out can be made except:
a. Alleviating public company agency issues
b. Enhancing operating margin
c. Issue equity share to enhance value
d. Tax Shield

Explanation: Issue equity share does not lead to value creation through LBO.

12. A restructuring strategy in which a type of common share that connects the shareholder's return
to the operating performance of a business division in the company:
a. Split off
b. Tracking Stock
c. Equity Carve-out
d. Spin off

Explanation: Tracking stock is a type of common stock that connects the shareholder's return
to the operating performance of a business division of the company.

13. An acquisition strategy in which a buyer buys a firm primarily using debt where, debt financing
makes up 50% or more of the capital structure:
a. Management Buyout
b. Leveraged Buyout
c. Lady Macbeth Strategy
d. Poison Pill

Explanation: Leveraged Buyout is when an acquirer buys a firm primarily using debt.

14. Which one of the following is an alternative exit strategy for failing firms:
a. Bankruptcy and Liquidation
b. Joint venture and strategic alliance
c. Spin off and split off
d. Licensing and franchising

Explanation: For failing firms, bankruptcy followed by liquidation is one of the exit strategy.

15. The Insolvency and Bankruptcy Code, 2016, was passed with the intention of regulating the
banking industry
a. True
b. False

Explanation: The Insolvency and Bankruptcy Code, 2016, was passed with the intention of
combining and amending the laws relating to the re-organization and insolvency resolution of
corporate persons, partnership firms, and individuals in a timely manner.

Page 3 of 3