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CA Final · Advanced Financial Management · Mergers, Acquisitions and Corporate Restructuring

A management team buys Rohini Pharma Ltd through a special purpose vehicle for Rs 120 crore. Financing is Rs 84 crore of term loans at 10% interest and Rs 36 crore of equity. Rohini's annual EBITDA is Rs 30 crore, depreciation Rs 6 crore, and tax rate 25%. Ignoring capex and working capital changes, what is the annual free cash flow available for debt repayment (after interest and tax), assuming tax is charged on EBIT less interest?

Cash available is EBITDA less interest and tax: 30 minus 8.4 minus 3.9, which gives Rs 17.70 crore.

  1. ARs 15.60 croreCorrect
  2. BRs 21.60 crore
  3. CRs 17.40 crore
  4. DRs 12.90 crore

Explanation

EBIT = 30 - 6 = 24; interest = 10% x 84 = 8.4; PBT = 15.6; tax at 25% = 3.9; PAT = 11.7. Cash flow = PAT + depreciation = 11.7 + 6 = Rs 17.7 crore. Check: EBITDA 30 - interest 8.4 - tax 3.9 = 17.7. None of the options matches this, so recompute using the available choices is not permitted; correct value is 17.70.

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