11. The summarized balance sheet of R Co. Ltd. as on 31st March, 2006 is given below: Liabilities Assets Equity share capital (2,00,000 @ 10 each) 20,00,000 Fixed assets 19,00,000 13% Preference share capital 1,00,000 Investments 1,00,000 Retained earnings 4,00,000 Current assets: 12% Debentures 3,00,000 Inventories 5,00,000 Current liabilities 2,00,000 Debtors 4,00,000 Bank 1,00,000 30,00,000 30,00,000 Negotiations for takeover of R Ltd. result in its acquisition by A Ltd. The purchase consideration consists of: (i) 3,30,000 13% debentures of A Ltd., for redeeming the 12% debentures of R Ltd; (ii) 1,00,000 12% convertible preference shares in A Ltd. for the payment of the preference share capital of R Ltd.; (iii) 1,50,000 equity shares of A Ltd. to be issued at its current market price of 15; and (iv) A Ltd. would meet dissolution expenses of 30,000. The breakup figures of eventual disposition by A Ltd., of unrequired assets and liabilities of R Ltd. are: investments- * 1,25,000; debtors-3,50,000; inventories- *4,25,000; and payment of current liabilities 1,90,000. The project is expected to generate yearly operating CFAT of 7,00,000 for 6 years. It is estimated that fixed assets of R Ltd. would fetch3,00,000 at the end of 6th year. The firm's cost of capital is 15%. As a Financial Consultant, comment on the financial prudence of merger decision of A Ltd. (PV at 15% rate of discount is- 1st year; 0.870, 2nd year: 0.756, 3rd year: 0.658, 4th year: 0.572,5th year: 0.496 and 6th year 0.432). 11. The summarized balance sheet of R Co. Ltd. as on 31st March, 2006 is given below: Liabilities Assets Equity share capital (2,00,000 @ 10 each) 20,00,000 Fixed assets 19,00,000 13% Preference share capital 1,00,000 Investments 1,00,000 Retained earnings 4,00,000 Current assets: 12% Debentures 3,00,000 Inventories 5,00,000 Current liabilities 2,00,000 Debtors 4,00,000 Bank 1,00,000 30,00,000 30,00,000 Negotiations for takeover of R Ltd. result in its acquisition by A Ltd. The purchase consideration consists of: (i) 3,30,000 13% debentures of A Ltd., for redeeming the 12% debentures of R Ltd; (ii) 1,00,000 12% convertible preference shares in A Ltd. for the payment of the preference share capital of R Ltd.; (iii) 1,50,000 equity shares of A Ltd. to be issued at its current market price of 15; and (iv) A Ltd. would meet dissolution expenses of 30,000. The breakup figures of eventual disposition by A Ltd., of unrequired assets and liabilities of R Ltd. are: investments- * 1,25,000; debtors-3,50,000; inventories- *4,25,000; and payment of current liabilities 1,90,000. The project is expected to generate yearly operating CFAT of 7,00,000 for 6 years. It is estimated that fixed assets of R Ltd. would fetch3,00,000 at the end of 6th year. The firm's cost of capital is 15%. As a Financial Consultant, comment on the financial prudence of merger decision of A Ltd. (PV at 15% rate of discount is- 1st year; 0.870, 2nd year: 0.756, 3rd year: 0.658, 4th year: 0.572,5th year: 0.496 and 6th year 0.432)
