From company values to fund NAV
Series XIX-A case study · set 2, case 1 of 5 · 4 questions · 1 mark each
Question 1 of 4Case practice
0 right · 0 wrong · 4 to go
The case · stays here for all 4 questions
Maple Fund holds 25% of Company A and 40% of Company B. An independent valuation exercise estimates the equity value of Company A at ₹80 crore and Company B at ₹50 crore. These are equity values after considering each company’s own debt, and the holdings carry no special rights requiring a separate adjustment. The fund also has ₹5 crore in cash and ₹3 crore in accrued fund liabilities. Ten lakh fund units are outstanding. Assume ownership percentages apply directly to these equity values. No other investments, liabilities, valuation discounts or unit classes exist. The administrator is preparing an estimated NAV report, and a distributor is checking the arithmetic before explaining it to investors.
Company values are hypothetical estimates, not guaranteed sale prices.
Use crore for fund amounts and the stated ten lakh units for NAV per unit.
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The case and its answers
Every question of this case, with its answer and why each other option is wrong.
Maple Fund holds 25% of Company A and 40% of Company B. An independent valuation exercise estimates the equity value of Company A at ₹80 crore and Company B at ₹50 crore. These are equity values after considering each company’s own debt, and the holdings carry no special rights requiring a separate adjustment. The fund also has ₹5 crore in cash and ₹3 crore in accrued fund liabilities. Ten lakh fund units are outstanding. Assume ownership percentages apply directly to these equity values. No other investments, liabilities, valuation discounts or unit classes exist. The administrator is preparing an estimated NAV report, and a distributor is checking the arithmetic before explaining it to investors.
Company values are hypothetical estimates, not guaranteed sale prices.
Use crore for fund amounts and the stated ten lakh units for NAV per unit.
Q1What is the value of Maple’s holding in Company A?
Option A. ₹25 crore
Why it is wrong: This treats the ownership percentage as an amount.
Option B. ₹20 crore — Correct answer
Option C. ₹32 crore
Why it is wrong: This applies Company B’s 40% ownership to Company A.
Option D. ₹80 crore
Why it is wrong: The fund owns only 25%, not the entire company.
Answer: B. The holding is 25% × ₹80 crore = ₹20 crore. Because the input is already an equity value, company debt must not be subtracted a second time. Remember: Apply ownership to the correct valuation base.
Hint, shown before you answer in practice mode: Apply the ownership percentage to the company’s equity value.
XIXA-S2-C01-Q1easynumerical
Q2What is Maple Fund’s total net asset value?
Option A. ₹135 crore
Why it is wrong: This adds whole-company values rather than the fund’s ownership shares.
Option B. ₹45 crore
Why it is wrong: This omits accrued fund liabilities.
Option C. ₹40 crore
Why it is wrong: This omits both cash and liabilities.
Option D. ₹42 crore — Correct answer
Answer: D. NAV = 25% × ₹80 crore + 40% × ₹50 crore + ₹5 crore − ₹3 crore = ₹42 crore. Company debt has already been incorporated into the supplied equity values. Remember: Fund NAV includes assets less fund-level liabilities.
Hint, shown before you answer in practice mode: Add the fund’s two holdings and cash, then subtract fund liabilities.
XIXA-S2-C01-Q2mediumnumerical
Q3What is the estimated NAV per fund unit?
Option A. ₹4,200
Why it is wrong: This uses one lakh units instead of ten lakh.
Option B. ₹450
Why it is wrong: This uses assets before deducting liabilities.
Option C. ₹42
Why it is wrong: This mixes crore and lakh units without converting.
Option D. ₹420 — Correct answer
Answer: D. ₹42 crore is ₹4,200 lakh. Dividing by 10 lakh units gives ₹420 per unit. The per-unit measure must use consistent rupee and unit counts. Remember: Convert amount units before calculating NAV per unit.
Hint, shown before you answer in practice mode: One crore rupees equals 100 lakh rupees.
XIXA-S2-C01-Q3mediumnumerical
Q4How should the distributor describe the ₹420 estimate?
Option A. As the value before fund liabilities.
Why it is wrong: The stated NAV deducts the accrued fund liabilities.
Option B. As a guaranteed redemption price available on demand.
Why it is wrong: The case provides no redemption right or guaranteed market buyer.
Option C. As a valuation-based unit value, without promising that an immediate sale is possible at that price. — Correct answer
Option D. As cash already received by every investor.
Why it is wrong: The value includes investments that have not been sold.
Answer: C. The calculation produces an estimated NAV from current valuations. It does not show that the illiquid holdings can be sold immediately or that investors have a right to redeem at ₹420. Remember: Do not confuse a marked value with readily available cash.
Hint, shown before you answer in practice mode: Estimated value and available liquidity are different things.
XIXA-S2-C01-Q4easyapplication
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