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

The management of Kaveri Foods Ltd proposes a management buyout (MBO) of the company. The equity value agreed is Rs 80 crore. The managers will invest Rs 8 crore of their own funds, a private equity fund will put in Rs 22 crore as equity, and the remainder will be raised as bank term loan. What is the debt as a percentage of total funding?

Total funding is Rs 80 crore. Managers and the private equity fund together contribute Rs 30 crore of equity, so the bank loan is Rs 50 crore. That is 50 divided by 80, or 62.5% of the total funding.

  1. A62.5%Correct
  2. B37.5%
  3. C27.5%
  4. D72.5%

Explanation

Total funding = Rs 80 crore. Equity contributions = 8 + 22 = Rs 30 crore. Debt = 80 - 30 = Rs 50 crore. Debt share = 50/80 = 62.5%. The 37.5% option is the equity share, a wrong-base mistake.

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