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Business Valuation
Jun 2026 Examination
Q1.
Ms. Neha plans to invest Rs.8,00,000 in a fixed deposit for 7 years at an
annual interest rate of 12%. Calculate the Effective Annual Rate (EAR) and the
maturity value (future value) of the investment assuming interest is compounded
once a year, 2 times a year, 4 times a year, and every month. Comment on the
results. (10 Marks)
Ans
1.
Introduction
The time
value of money is a fundamental concept in finance that recognizes that a rupee
received today is worth more than a rupee received in the future. When an
investment earns compound interest, the frequency of compounding directly
affects the actual return earned and the final maturity value. The Effective
Annual Rate reflects the true annualized return after accounting for the number
of compounding periods within a year. A higher compounding frequency results in
a higher EAR and therefore a larger maturity value, even though the nominal
annual rate remains the same. This principle has important implications for investment
decisions, loan comparisons, and business
Q2
(A). BlueWave Infrastructure Ltd. is being evaluated for acquisition by a
private equity firm. During negotiations, both parties agree that the company's
assets and liabilities should not be considered at their historical book values
shown in the balance sheet. Instead, independent professional valuers are
appointed to reassess all major assets and liabilities at their fair market
value as on the valuation date before determining the company's overall worth.
Identify the valuation method being used and explain how it is calculated. Also
discuss its relevance in this situation. (5 Marks)
Ans
2(A).
Introduction
The
valuation method being used in this scenario is the Adjusted Net Asset Value
method, which is a variant of the asset-based approach to business valuation.
Unlike the book value method that relies on historical cost figures from
financial statements, the Adjusted NAV method restates all assets and
liabilities at their current fair market value as on a specific valuation date.
This makes it one of the most reliable methods for acquisition transactions
where both parties need an economically
Q2
(B). XYZ Retail Ltd, a chain of supermarkets operating across South India,
reported the following financial data for the year ended March 2026: Net Profit
after Tax: Rs.8,00,000, Shareholders' Equity: Rs.40,00,000, Total Revenue:
Rs.1,20,00,000, Total Assets: Rs.60,00,000. Based on the above information,
calculate the Return on Equity (ROE) and Asset Turnover Ratio. Briefly
interpret what these ratios indicate about the company's profitability and
efficiency. (5 Marks)
Ans
2(B).
Introduction
Financial
ratios translate raw accounting figures into meaningful performance indicators
that help investors, management, and acquirers assess a company's operational
effectiveness and return generation capacity. Return on Equity measures how
efficiently the company generates profits from shareholders' capital, while the
Asset Turnover Ratio measures how effectively total assets are used to generate
revenue. Together these two ratios provide insight into both profitability and
Dear
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Do
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or
call us at : 08263069601
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proofed assignments available with 100% surety and refund)
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