Pooling Interest Method

Q.6/2016 Ringo Bingo Ringo-Bingo

Liabilities:
Liabilities 4 2 6
Shareholders Equity 6 3 9
10 5 15
Assets:
Tangible 10 5 15

Purchase Method
Liabilities:
Liabilities 4 2 6
Shareholders Equity 6 4 10
10 6 16
Assets:
Tangible 10 5 15
Goodwill 0 1 1
10 6 16

Q.6/2015 σA = σB = 0.2
TA = TB = 4 years maturity of debt
VA = VB =Rs 2000
Rf = 0.06
DA = DB =Rs 1000 Face Value of Debt
ϒ = 0.6

VA + VB = 4000
(σAB)^2 = 0.032
(σAB) = 0.17888544
At risk =0 i= Rf = 6% σA=σB=0.2
KA = Rf + Rf *σA KAB = Rf + Rf *(σAB)
KA = 0.072 0.0707
KB = Rf + Rf *σB EBIT = 288
KB = 0.072 Now the value of the firm will be
Value of firm = EBIT/K EBIT/KAB
4000= EBIT/0.072 4,071.64
EBIT = 288

Q.11/2014
/2015 A T Combined
Net Income $100 $100 $200
No. of Shares 100 100 140 Combined (P/E) =
 EPS (Old) $1 $1 $1.43
P/E Ratio 50x 10x 50x
Price per share $50 $10 $71.43
Total Market Value (Old) $5000 $1000 $6000 Combined MPS =

EPS (New) $1.43 $1.43 $1.43

EPS (% Change) 43.00% 43.00%
No of shares after Marger 100 40 140
Total Market value 4290 1716 6006
Old Market Value 5000 1000 6000
% change -14.20% 71.60% 0.10%
Proportion (New) 71.43% 28.57%

Q.6/2013 Bionomial option pricing theory

750 500
V = 500 1.5
X= 250 500
μ= 1.5 0.67 333.33 83.33
d= 0.6666666667
p= 0.7 Equity= e^(-rt) [ Fu . P + (1-p)* fd]
1-p= 0.3 0.86070798 375
Rf= 5% 322.765491
T= 3 Debt = 177.234509

If X is 400 then Fu will be (750-400) = 350 and fd will be 0

Equity= e^(-rt) [ Fu . P + (1-p)* fd]

0.86070798 245
210.873454
Debt = 289.126546

Q.11/2013 Case Study

i) EPS = EAT/No of shares
1.875
ii) EPS (5:1)ratio
400000 shares of Deccan means 80000 shares of
Best Company .
Now the total no of shares will be 2080000
EPS = 2.16
iii) Exchange 1 share of every 3 shares of Deccan Pharma
400000 shares of Deccan means 133333.333
Now the total no of shares will be 2133333.33
EPS = 2.11
P/E ratio = MPS/EPS 25

i) 25 = MPS/1.875
MPS = 46.875

i) 25 = MPS/2.16
MPS = 54

i) 25 = MPS/2.11
MPS = 52.75
Q.11/2016
a) Total Assets = Debt + Equity
= Debt +[Book Value per share X no. of outstanding shares]

Rely Infy Wip

Equity 50 20 20
Debt (1:1) 50 20 20
100 40 40

b) EBIT = r (before tax) x TA

r (After tax) 9% 18% 15%

Tax rate 40% 40% 40%
r (before tax) 15% 30% 25%
EBIT 15 12 10

c) VL = EBIT(1-Tc) + K[EBIT(1-Tc)] r - WACC

WACC WACC(1+WACC)

V (Rely) = 15(1-40%) + 1[15(1-40%)] 15% - 9%

9% 9%( 1+9%)

= 100 + 9 * 0.6116207951
= 100 + 5.504587156
V(Rely)= 105.50459

V(Infy) = 12(1-40%) + 1[12(1-40%)] 30% - 11%

11% 11%( 1+11%)

= 65.454545 + 11.203931204
V(Infy)= 76.658477

V(WIP) = 10(1-40%) + 1.5[10(1-40%)] 25% - 12%

12% 12%( 1+12%)

50 + 8.7053571429
V(WIP) = 58.705357

P/E(A) * n(A) + P/E(B) * n(B)

 n(A) + n(B)

30
42.9

Fu

Fd

Q.7/2013 A T
Eps 2 1
Exp. Growth 0.05 0.1
No of Share 10 3 Lakhs
price/share 20 10

Swap ratio = Ratio of market Values

MV(A) : MV(T)
20:10
Swap Ratio 2:1

No of outstanding share of T company after acquition

150000
Total outstanding shares= 1150000

EPS combined= 2

Year A T Combined
0 2.000 1 2
1 2.100 1.1000 2.1130435
2 2.205 1.2100 2.2330435
3 2.315 1.3310 2.3604783
4 2.431 1.4641 2.495863
5 2.553 1.6105 2.6397532
 6 2.680 1.7716 2.7927475
7 2.814 1.9487 2.9554922
8 2.955 2.1436 3.1286848
9 3.103 2.3579 3.3130789
10 3.258 2.5937 3.5094887