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1. A acquire B with shares at an exchange price of Rs.40. The other financial details
of both companies are given below:
Particulars A B
Analyse the EPS and market value impact on A owing to this acquisition.
Working:
Value Gain
Total current earnings Rs. 2.5 million Rs.0.9 million
No: of o/s shares Rs 0.5 million Rs. 0.3 million
Market price per share Rs. 21 Rs. 14
Working:
a. EPS Value = 2500000/500000 = Rs. 5
EPS Gain = 900000/300000 = Rs. 3
The share holders of RIL are better off after the merger.
Expected market price after merger = EPS x PE = 2.88 X10 = Rs. 28.8
Market value of RIL after merger = 28.8 x 1250000 = Rs. 3.60 Crores