Investors Ltd. is in the process of acquisition of shares of Glue Ltd. as part of business reorganization plan. The projected free cash flows of…

CA Final · Financial Reporting · PYQS · May 2025
Investors Ltd. is in the process of acquisition of shares of Glue Ltd. as part of business reorganization plan. The projected free cash flows of Glue Ltd. for the next 5 years are as follows: Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Cash flows 420 418 272 606 777 Terminal value 8,919 The weighted average cost of capital of Glue Ltd. is 12%. The total debt as on measurement date is 3,294 lakhs and the surplus cash and cash equivalents is 240 lakhs. The total number of shares of Glue Ltd. as on the measurement date is 20 lakhs*. You are required to determine the value per share of Glue Ltd. as per Income Approach as enunciated in Ind AS 113, Fair Value Measurement. Compute value per share upto 2 decimal points. Present value factor of 1 at 12% is as under: Year 1 Year 2 Year 3 Year 4 Year 5 0.8929 0.7972 0.7118 0.6355 0.5674

Suggested Answer and Working Notes:

Determination of equity value of Glue Ltd. (₹ in lakhs) Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Cash flows 420.0000 418.0000 272.0000 606.0000 777.0000 Terminal value 8,919.0000 420.0000 418.0000 272.0000 606.0000 9,696.0000 Discount rate factor 0.8929 0.7972 0.7118 0.6355 0.5674 Free cash flow available to the firm 375.0180 333.2296 193.6096 385.1130 5,501.5104 Total of all years discounted cashflows 6,788.4806 Less: Debt (3,294.0000) Add: Cash & cash equivalents 240.0000 Equity value of Glue Ltd. (A) 3,734.4806 Number of shares (B) 20,00,000 Per share value (A/B) 186.72403

Topics: Ind AS 113

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