Skip to content

CS Professional · Corporate Restructuring, Valuation and Insolvency · Overview of Business Valuation

Two companies, Kaveri Foods Ltd and Narmada Snacks Ltd, plan to amalgamate. The boards need to decide how many shares of the transferee company will be issued to the shareholders of the transferor company. Which valuation purpose is directly served?

The valuation is used to determine the share exchange ratio. Relative values of the two merging companies are compared so that shareholders of the transferor receive a fair number of transferee shares, keeping the amalgamation equitable to both groups.

  1. ADetermining the share exchange ratio for the scheme of amalgamationCorrect
  2. BEstimating the liquidation value for winding up of the transferee
  3. CCalculating stamp duty on the lease of the factory
  4. DMeasuring employee productivity

Explanation

In a merger, the shareholders of the transferor receive shares of the transferee. The relative values of both companies are needed to arrive at a fair swap ratio. Liquidation value relates to winding up, which is not the case here.

Did you get it right without looking?

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

Practise Overview of Business ValuationFree diagnostic mock

More Overview of Business Valuation questions