FINAL EXAMINATION SET 2

MODEL QUESTION PAPER TERM – JUNE 2023

PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

Time Allowed: 3 Hours Full Marks: 100

The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.

SECTION – A : STRATEGIC PERFORMANCE MANAGEMENT

Answer to Question No. 1 and 5 are compulsory; answer any two from Question No. 2, 3 & 4.

1. (a) Choose the correct alternative. Provide justification in each case. 1 mark is
allotted for correct selection and 1 mark for the justification.: [5 × 2 = 10]

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(i) Pyramid method is the other name for
a. Comparative statement
b.
c.
d.
Trend analysis
Common Size Statement
Du Pont analysis
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Provide a reason in support of your answer.
(ii) Selecting the right vendors, categorizing vendors to ensure the right contract,
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metrics and relationship, determining the ideal number of vendors, mitigating

risk when using vendors and establishing a vendor management organization
that best fits the enterprise are the important aspects of
a. Vendor relationship management
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b. Customer relationship management

c. Supply chain management
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d. Procurement to pay management

Briefly justify.
(iii) Perceived value pricing and differential pricing are two types of
a. Cost based pricing
b. Demand based pricing
c. Competition based pricing
d. Strategy based pricing
Please provide reason in support of your selection.
(iv) Five accounting ratios are as follows
Working Capital to Total Assets =0.250
Retained Earnings to Total Assets = 50%
EBIT to Total Assets = 19%
Book Value of Equity to Book Value of Total Debt = 1.65

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

Sales to Total Assets = 3 times

Using Altman’s Multiple Discriminant Function, the Z-score of S & Co. Ltd
is
a. 8.24
b. 2.88
c. 4.88
d. 1.67
(v) Vazir Ltd., a monopolist, can effectively segment the market into two sub-
markets with the demand functions: P1 = 300 - 2Q1 and P2 = 200 - 2Q2. If
price discrimination is allowed. The maximum possible profit that can be
earned by the monopolist is

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a. Rs 10625
b. Rs 10762
c. Rs 10262
d. Rs 10520 tu
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2. (a) Describe the internal factors affecting pricing decision of a firm. [6]
(b) Mr. Hardik Kankara is planning to take over the business of Artex LLP. For the
purpose Mr. Hardik appoints you to analyse the profitability of Artex LLP for the
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period ended 31st March 2022. The following balances are extracted from
statement of Profit and Loss and Balance Sheet of Artex LLP for the year ended 31st
march 2022. You are requested to make 5-componenet DuPont analysis and
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summarize the data along with your observations for Mr. Hardik.
Particulars Amount (₹)
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Sales 17,750
Depreciation 500
Interest Expenses 50
Tax Expenses 2,250
Net Income 4,125
Current Assets 11,500
Fixed Assets, net 6,625
Total Assets 18,125
Current Liabilities 7,500
Long term debt 375
Shareholders’ Equity 10,250
Total Liabilities and Shareholder’s equity 18,125
(current liabilities + long term debt + shareholders’ equity)
[10]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

3. (a) The Balance Sheet of Pelikan Ltd. as on 30.12.2022 is given below:

Liabilities ` Assets `
Equity Share Capital (@ `10 each) 2,00,000 Fixed Assets 10,00,000
Retained Earnings 2,00,000 Investments 2,00,000
12% Debentures 3,00,000 Stock 1,50,000
10% Long term Loan 2,00,000 Sundry Debtors 75,000
Current Liabilities 5,50,000 Preliminary Expenses 25,000
14,50,000 14,50,000
Additional Information:
(i) Net Sales for year ended 31/12/2022 ` 29,50,000.
(ii) Dividend per share for year ended 31/12/2022 is ` 0.40

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(iii) Dividend Payout Ratio as on 31/12/2022 is 50%.
(iv) Price Earnings Ratio is 15.
(v) Corporate tax rate = 50%.
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Using Altman's function, calculate Z score of Pelikan Ltd. and draw inference from
the result. [8+1=9]
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(b) Answer both the questions
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(i) “A strategy map is conceptually a part of the Balanced Score Card (BSC)” –
critically assess the statement.
(ii) Critically analyse the ends-ways-means model of traditional strategic
planning. [4+3=7]
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4. (a) The following is the summarised Income Statements for two consecutive years of
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Pinacle Star Ltd.

Particulars Year 1 (`) Year 2 (`)
Turnover 70,000 1,00,000
Less: Cost of sales 42,000 55,000
Gross profit 28,000 45,000
Less: Expenses 21,000 35,000
Net Profit 7,000 10,000

Mr. X, the owner of the company is happy that the net profit is maintained at the
same percentage over the two-year period. But his brother Mr. Y, who is currently
doing his MBA from a reputed Institute would like to look into the numbers.
What do you think would be the analysis to be made by Mr. Y regarding the
numbers?

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

You are to show the calculations which is recommended to give an insight into the
profitability, as suggested by Mr. Y
Do you think the views of Mr. X is factually correct based on due reconciliation?
[2+6+2=10]

(b) Answer both the question:

(i) Distinguish between Basel I and Base II provisions.
(ii) Make a critical assessment of the various methods of measuring corporate
failure? Which is the most well accepted method of measuring corporate
failure and examine why is it the most well accepted. [3+3=6]

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5. Palm was a pioneer in hand-held computers in the early 1990s. In December 2000, annual
sales were up 165 percent from the previous year. In March 2001, the first sign of slowing
sales hit the firm. The top management of Palm decided that the appropriate response
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was to quickly launch its newest model of hand-held computers, the m500 line. The CEO,
Carl Yankowski, received assurances from his management that the m500 line could be
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out in two weeks. Palm unveiled the m500 line on March 19. Sales of Palm’s existing
devices slowed further as customers decided to wait for the new model. The problem was
that the wait wasn’t two weeks. Palm hadn’t left enough time for the testing of the m500
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before sending the design to be manufactured. Production of the m500 line kept hitting
snags. Palm wasn’t able to ship the new model in volume until May, more than six weeks
after the announcement. Inventory of the older product began to pile up, leading to a huge
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$300 million write-off of excess inventory and a net loss of $392 million for the fiscal
quarter ended June 1, compared with a profit of $12.4 million a year earlier. The firm’s
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stock price plummeted, and, as a consequence, an acquisition that was key to Palm’s
strategy collapsed—the deal was for $264 million in Palm’s stock. The company cut 250
workers, lost key employees, and halted the construction of a new headquarters. Palm’s
rivals, such as RIM (BlackBerry) and Microsoft, increased their efforts to capitalize on
Palm’s mistakes.
Read the Caselet and answer the following questions
(i) Formulate the risks which caused misfortune of Palm Inc.
(ii) Formulate a set of strategic decisions and related action points on behalf of the
management of Palm Inc. after drawing lessons from the above events to avoid
such unfortunate results in future. [8]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

SECTION – B : BUSINESS VALUATION

Answer to Question No. 6 and 10 are compulsory; answer any two from Question No. 7, 8 & 9.

6. (a) Choose the correct alternative. Provide justification in each case. 1 mark is
allotted for correct selection and 1 mark for the justification.: [5 × 2 = 10]

(i) ________ give target company bondholders the right to sell their bonds back
to the target at a pre-specified redemption price in the event of a takeover.
a. Poison pills

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b. Poison puts
c. Share repurchase
d. None of these
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(ii) Which of the following approaches to valuation would most likely use EV-
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EBITDA multiple for valuation:
a. Market approach
b. Cost approach
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c. Income approach
d. Asset approach
(iii) Future retail is liquidated and a new company Future Enterprise is formed to
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take over its business. It is a case of:

a. Absorption
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b. External reconstruction
c. Amalgamation
d. Take over
(iv) X Ltd. has `100 crores of common equity on its balance sheet comprising of
50 lakhs shares. The company’s market value added (MVA) is `24 crores.
What is company’s stock price?
a. `230
b. `238
c. `248
d. `264
(v) The following details are given for a company: Sales – INR 1,00,000;
Operating Expenses - INR 75,000; Depreciation - INR 20,000; Tax – 35%;
Change in net working capital – INR 1,000; capital spending – INR 10,000.
The free cash flow to firm (FCFF) for the given data would be:

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

a. INR 10,000
b. INR 12,250
c. INR 13,500
d. INR 15,000

7. (a) What do you mean by Asset reconstruction? What is the role of Asset
reconstruction companies? [6]
(b) State the different types of risks. [3]
(c) Point out some circumstances when Market Approach to valuation should be
applied. [7]

8. (a) A debenture of face value ₹100 that carries an interest rate of 15% is redeemable
after 5 years at a premium of 2%. The 5-year government bonds are yielding 7

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percent and the 10 year Government bonds are yielding 7.25 percent. The default
credit spread for the company based on the comparable companies is 1100 basis

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points. Analyze the information to determine the present value of the debenture to
[6]
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(b) Shivani Limited is considering a takeover of Agam Limited. The particulars of two
companies are given below:
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Particulars Shivani Limited Agam Limited

Earnings after tax (₹) 10,00,000 5,00,000
Equity shares (numbers) 5,00,000 1,25,000
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Earnings per share 2 4

Price earnings ratio (times) 10 5
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Analyze the information to determine the following:

(i) the market value of each company before merger. [2]
(ii) the market value of the post-merger effect on Shivani Limited, assuming that
the management of Shivani Limited estimates that the shareholders of Agam
Limited will accept an offer of one share of Shivani Limited for five shares
of Agam Limited. Are the shareholders of Shivani Limited better or worse
off than they were before the merger? [6]
(iii) the market price per share if due to synergic effects, the management of
Shivani Limited estimates that the earnings will increase by 20%. [2]

9. (a) Shivam Ltd is proposing to acquire Megha Ltd and has retained you as a valuer to
assess the estimated value of Megha Ltd. There have been some recent Mergers
and Acquisitions in the same industry and you believe that valuation of Megha Ltd
would be appropriate using the comparable transaction approach. You have

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

identified the following information with respect to the comparable Companies X

Ltd, Y Ltd, and Z Ltd and their respective deal prices and financial statistics.
Particulars Megha Ltd X Ltd Y Ltd Z Ltd
Deal price per share (₹) - 50.50 25.00 108.00
EPS (₹) 3.90 2.20 2.80 5.50
Book Value per share (₹) 22.20 11.50 6.50 26.50
Sales per share (₹) 39.60 21.75 11.70 46.60
Suggest the value of Megha Ltd using: [6]
(i) Price to Earnings multiple
(ii) Price to Book Value multiple
(iii) Price to Sales multiple

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What is your take on the control premium in this case? [1]

(b) AK has been assigned to value MS Pvt Ltd. The company is privately held and
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does not have any major operations, due to which the market comparable
companies were not identified and the management has not been able to provide
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any meaningful forecast about the company. The extract of financials of MS Ltd.
is as follows.
Summary of Balance Sheet as on March 22, 2023
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Equity and Liabilities Amount (₹ in lakhs)

Equity Share Capital 150.43
Other Equity 732.06
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Long Term Borrowings 1376.38

Short Term Borrowings 125.17
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Total 2384.04
Assets
Property, Plant and Equipment 540.67
Investments 1099.28
Cash and Cash Equivalents 99.69
Loans 528.28
Other Current Assets 116.22
Total 2384.04
Additional information:
i) The company records PP&E and Investments at cost.
ii) Property. Plant & Equipment contains land of ₹220.70 in the books. Based
on the assessment, the land value has appreciated by 15 percent from the
book value.

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER – 20A
STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION

iii) Investments include 35,000 shares of Wipro and 18,000 shares of TCS. As
on the valuation date, they are trading at ₹2,000 per share and ₹2,700 per
share respectively.
iv) The number of shares outstanding is 3,28,000
You are required to calculate:
i) Book value of the company.
ii) Net Asset Value of the company on fair value basis.
iii) Value per share. [9]
10. Following is the Profit and Loss Account and Balance Sheet for Durga Ltd.
Extracts of Profit and Loss Account:
Particulars (INR in Lakhs) 2021 2022
Turnover 600 750

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Pre-tax accounting profit 148 192
Taxation 38 52
Profit after tax
Dividends
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28
72
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Retained earnings 82 51

Balance Sheet extracts:

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Particulars (INR in Lakhs) 2021 2022

Fixed Assets 320 410
Net Current Assets 340 312
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Total 660 722

Equity Shareholders Funds 400 562
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Medium and long-term bank loan 210 178

The Companies performance in regard to turnover had increased by 25% along with the
increase in pre-tax profit by 30% but shareholders are not satisfied by the company’s
preference in the last 2 years.
Develop a report to be submitted to the management to analyze the reasons of non-
satisfaction by determining the economic value added as suggested by M/s. Stern & Co.,
USA. You are also given –
Particulars 2021 2022
Pre-tax cost of debt 8% 9%
Cost of equity 12% 15%
Tax rate 35% 35%
Interest expense (₹ in lakhs) ₹6 ₹10
[8]

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Directorate of Studies, The Institute of Cost Accountants of India