Find out: Market price of A Limited's share after acquisition.
CS Professional · Valuations & Business Modelling · PYQS · December 2021
Find out: Market price of A Limited's share after acquisition.
Answer & Explanation:
Market price of A Limited's share after acquisition: 1. P/E ratio of A Limited before acquisition: Market Price per share of A Limited = ₹175 (from 1(a)) EPS of A Limited = ₹10.40 (from 1(a)) P/E Ratio = Market Price / EPS = ₹175 / ₹10.40 = 16.83 2. New P/E Ratio of A Limited after acquisition: It is expected that A Limited's P/E Ratio will increase by 10% from its existing level after the acquisition. New P/E Ratio = 16.83 + (10% of 16.83) = 16.83 + 1.683 = 18.513 (approximately 18.51) 3. Market Price of A Limited's share after acquisition: EPS of A Limited after acquisition = ₹12.11 (from 1(b)(ii)) Market Price = New P/E Ratio × EPS after acquisition = 18.51 × ₹12.11 = ₹224.16
Topics: Valuation of Business
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