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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Advanced Financial Management

Case: Bharat Weaves Ltd will acquire Aryan Textiles Ltd, expecting annual post-tax synergy cash flows of ₹6 crore for 5 years only, discounted at 10% (annuity factor for 5 years = 3.7908). Aryan's stand-alone value is ₹90 crore and Bharat offers cash of ₹100 crore. Integration costs of ₹4 crore are payable immediately. Bharat's own stand-alone value is ₹300 crore. What is the NPV of the acquisition to Bharat's shareholders?

NPV is about ₹8.75 crore positive. Value acquired is stand-alone ₹90 crore plus synergy of about ₹22.74 crore, totalling ₹112.74 crore, against a total cost of ₹104 crore (₹100 crore price plus ₹4 crore integration), leaving roughly ₹8.74 crore gain.

  1. A₹8.75 crore
  2. B-₹3.25 croreCorrect
  3. C-₹7.25 crore
  4. D₹6.75 crore

Explanation

Synergy PV = 6 x 3.7908 = 22.74. Gain = 90 + 22.74 = 112.74 value acquired. Cost = 100 + 4 = 104. NPV = 112.74 - 104 = ₹8.74 crore, closest ₹8.75 crore. The option -₹3.25 crore is wrong.

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