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

Sundaram Foods Ltd's promoters group of managers plans a buyout of the company at an enterprise price of Rs 200 crore. Financing: senior debt Rs 100 crore, mezzanine debt Rs 40 crore, and the balance as equity from managers and a private equity fund. What is the equity contribution, and what percentage of the purchase price is it?

Equity is the purchase price less total debt: 200 crore minus 140 crore of senior and mezzanine debt gives Rs 60 crore, which equals 30% of the price. The remaining 70% is debt-funded, typical of a leveraged management buyout.

  1. ARs 60 crore; 30%Correct
  2. BRs 100 crore; 50%
  3. CRs 40 crore; 20%
  4. DRs 140 crore; 70%

Explanation

Total debt = 100 + 40 = Rs 140 crore. Equity = 200 - 140 = Rs 60 crore, which is 60/200 = 30%. Rs 40 crore (20%) wrongly counts only the mezzanine as the gap, and Rs 140 crore is the debt itself.

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