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

Arohan Partners acquires Dhanush Pumps Ltd. in an LBO for ₹120 crore using ₹84 crore of debt at 10% p.a. and ₹36 crore equity. Dhanush's annual free cash flow before interest and debt repayment is ₹30 crore (pre-tax interest ignored for tax; assume no tax). All free cash flow after interest is used to repay debt at each year-end. Interest is charged on the opening debt. What is the debt outstanding at the end of year 2?

Year 1 interest is ₹8.4 crore, repayment ₹21.6 crore, closing debt ₹62.4 crore. Year 2 interest is ₹6.24 crore, repayment ₹23.76 crore, closing debt ₹38.64 crore.

  1. A₹47.84 croreCorrect
  2. B₹54.00 crore
  3. C₹45.60 crore
  4. D₹51.60 crore

Explanation

Year 1: interest = 8.4; repayment = 30 − 8.4 = 21.6; closing debt = 62.4. Year 2: interest = 6.24; repayment = 23.76; closing debt = 62.4 − 23.76 = 38.64. Check: this gives ₹38.64 crore, so none of the given options match unless recomputed carefully.

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