Mustration: 5 (EPS)

CompanyX is contemplating to purchase Company Y. Company X has 3,00,000 shares havinga market
price ofR 30pershare while Company Y has 2,00,000 shares selling at 20 pershare. The EPS are4
and

2.25 for X and Y respectively.

Managements of both the
Companies are discussing two alternative proposals for exchange of shares as
indicated below :
In proportion to the relative earning per share of two companies.
Calculate EPS after merger.
Tlustration:6(EPS)
ABC Ltd is intending to acquire XYZ Ltd by
merger and the following information is availaoie
ABC LtdXYZ Ltd.
No. of Equity Shares
EAT 10,00,000 6,00,000
M.V. per share
50,00,000 18,00,000
42 28
Required
1. Calculate present EPS of both the
Companies.
2 Calculate EPS after merger.
 vraukeTTTICe)
Following information is extracted from the books of Mark Ltd., acquiring firm and Mask Lid., targe
fim.
Mark Ltd. Mask Ltd.
Earning after tax 7400 lakhs
72,000 lakhs
No. of shares 100 lakhs
200 lakhs
P/E Ratio (times 10 5
Requiredd:
1. Calculate market price of shares of both the companies.
2. Find out swap ratio based on market price.
3. What is present EPS?
What is EPS of Mark Ltd. after acquisition?
5. Decide the market value of the mergedfirm.
Solution
 =
30
lustration: 9 (EPS)
Sunny Ltd. 15Studyingthe possible acquisition of Rainy Ltd.the following informationRainy
isavailabic
Ltd.
Sunny Ltd.
Profit After Tax 75,000
3,00,00o
Equity Shares Outstanding 50,000 10,000
P/EMultiple 2
If mergertakes place by exchange of equity shares based on marketprice, what is EPS of the new ni
Solution
EPS
Sunny Ltd. = 3,00,000
 dcquis10
cquls1on)
A Ltd. wanus to
acquire T Ltd. and has offered swan
Id Following information is
ratio of 1:2 (0.5 shares for eveTy one
sila
supplied.
B Ltd.
Profit After Tax A Ltd.
18,00,000 3,60,000
No. of Equity Shares 1,80,000D
6,00,00o
EPS 3 2
P/E Ratio
10
14
Market Price Per Share 30
Calculate:
i) No. of equity shares to be issued by A Ltd. for acquisition of T Ltd.
ii) EPS after acquisition.
ii) Equivalent EPS of T Ltd. P/E ratio remains unchanged.
iv) Expected price per share of A Ltd. after acquisition assuming
market

v) Market value of the merged firm.

one share n YZ Ltd. O0,UUU Of

ifustrátio 18 (Net Asset Value

Ltd. wants to takeover YLtd. andEPS)
the financial details are as
Particulars folows Y Ltd.
X Ltd.
Preference share Capital
Eauity Share Capital of F 10 each 20,000
Securities Premiuim 1,00,000 50,000
Profit and Loss Account 2,000
10% Debentures 38,000 4,000
15,000 5,000
Fixed Assets 173,000 61,000
Current Assets 1,22,000 35,000
51,000 26,000
Profit After Tax and Preference 173.000 61,000
Market Price Dividend 24,000 15,000
24 27
 Set
e t value
val
Value.EPs)
X Ltd. wants EPS)
to takeover Y Ltd. and the financial
details are as follows
Particulars X Ltd. YLtd.
Preference Share Capital 20,000
Equity Share Capital of 10 each 1,00,000 50,000
Securities Premium 2,000
Profit and Loss Account
38,000 4,000
10% Debentures
15,000 5,000
1,73,000 61,000
Fixed Assets 1,22,000 35,000
Current Assets 51,000 26,000
1,73.000 61,000
Profit After Tax and Preference Dividend 24,000 15,000
Market Price 24 27

Eschenge Rato Baged on NAY, EPS MPS

llustration: 27 (Value of Synergy
Ltd. operate indeperndently and had the following financial statement
statement
and SmithParticulars
.

Two firms Ankit Ltd.

Ankit Ltd. | Smith Ltd.

Revenues
4,400 3,000
3,850 2,670
Cost of Goods Sold
550 330
EBIT
Expected Growth Rate 5% 6%
Cost of Equity 10% | 12%
Cost of Debt (Pre-Tax) 9% 9%
Debt-Equity Ratio 1:2 2:3

Both firms are in a steady state and working capital requirements for both firms are nil. Both firms have
tax rate of 35%. Combining the two firms will
create in form of shared distribution
economies of scale the
and advertising costs which will increase its future growh to 7% and reduce the cost of goods sold to 85% of
revenues.
Requirements:
i) Estimate the value of both fims separate entitles.
as

ii) Estimate the value of combined firm with no synergy efect.

il) Estimate the value of combined firm with synergy effect.
iv) Compute the value of synergy