Skip to content

CS Professional · Corporate Restructuring, Valuation and Insolvency · Valuation of Business and Assets for Corporate Restructuring

Sundaram Textiles Ltd proposes to merge with Kaveri Fabrics Ltd under a scheme of amalgamation. The board wants a figure that helps decide how many shares of the transferee company should be issued to the shareholders of the transferor company. Which valuation-related step directly serves this need?

The share exchange ratio, derived from valuing both companies, determines how many transferee shares go to transferor shareholders. It compares relative values, so valuing only fixed assets or dividends would give an incomplete and unfair result.

  1. ADetermining the share exchange ratio based on the valuation of both companiesCorrect
  2. BFixing the face value of the transferee's shares at par
  3. CComputing only the book value of the transferor's fixed assets
  4. DCalculating the transferor's past dividend payout alone

Explanation

In a merger, shareholders of the transferor receive shares of the transferee. The number of shares depends on the relative values of the two companies, so a valuation-based share exchange ratio is needed. Looking only at fixed assets or dividends ignores the overall value of the business.

Did you get it right without looking?

One question tells you little. A timed set on Valuation of Business and Assets for Corporate Restructuring shows your real accuracy, how long you take and where you lose marks.

Practise Valuation of Business and Assets for Corporate RestructuringFree diagnostic mock

More Valuation of Business and Assets for Corporate Restructuring questions