NARSEE April 2022 assignment help Based on the current sha

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Corporate Finance II

1. SAB Miller, a food and beverages company, estimated the NPV of the expected cash flows from a new soft drinks processing plant to be Rs. 2.5 crores. The company is evaluating an incremental investment of Rs. 3 crores that would give management flexibility to switch among the cold press and hot press juice making technologies. The original plan relied only on hot press. The option to switch to cold press technology has an estimated value of Rs. 9 crores. What is the value of the new processing plant including this real option to use alternative juice making technologies? (10 Marks)

2. Bharat Steel Ltd, a steel producer has announced its plan to acquire Kaveri Steel Ltd, a small producer of specialty steel. Bharat Steel has outlined the terms of the merger, which specify that shareholders of Kaveri Steel will receive 0.65 shares of Bharat Steel for every share of Kaveri Steel owned. Kaveri Steel has 2.6 million shares outstanding. On the day of the merger announcement, Bharat Steel share prices closed at Rs. 780 and Kaveri Steel s share prices closed at Rs. 385. An investor owns 1000 shares of Kaveri Steel currently work Rs. 3,85,000.
a. Based on the current share prices, what is the cost of acquisition for Bharat Steel?
b. How many shares of Bharat Steel will the investor receive, and what is the value of those shares based on current share prices? What is the control premium paid by Bharat Steel? (10 Marks)

3. Eneron Company plans to borrow Rupees 50 crores, which it will use to repurchase shares. The following information about the company is given:

Share price at the time of share repurchase = Rs. 250
Earnings after tax = Rs. 25 crores
EPS before share repurchase = Rs. 12.5
Price/Earnings (P/E) = 20
Earnings Yield (E/P) = 5%
Shares outstanding = 2,00,00,000
Planned share repurchase = 20,00,000

a. Calculate the EPS after the share repurchase, assuming the after-tax cost of borrowing is 10%. (5 Marks)

b. Calculate the EPS after the share repurchase, assuming the company s borrowing rate increases to 12% because of the increased financial risk of borrowing Rs. 50 crores. (5 Marks)

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