The following information is available in respect of acquiring company FM Ltd. and target company VM Ltd. : Particulars FM Ltd VM Ltd Remarks Earnings after Tax ₹2000 lakh ₹400 lakh PAT No. of Shares issued and paid up 2

CS Professional · Corporate Restructuring, Valuation and Insolvency · PYQS · June 2019
The following information is available in respect of acquiring company FM Ltd. and target company VM Ltd. : Particulars FM Ltd VM Ltd Remarks Earnings after Tax ₹2000 lakh ₹400 lakh PAT No. of Shares issued and paid up 200 lakh 100 lakh Face Value ₹10 P/E Ratio 10 5 — You are required to calculate: Swap Ratio on Current Market Price.

Answer & Explanation:

S. No. Particulars FM Ltd. VM Ltd. 1 Earnings Per Share (EPS) ₹2,000 lakh / 200 lakh = ₹10 ₹400 lakh / 100 lakh = ₹4 2 Market Price (EPS x PE ratio) 10 × 10 = ₹100 per share 4 × 5 = ₹20 per share Swap Ratio = 20/100 = 0.2 i.e. 1 share of FM Ltd. for every 5 shares of VM Ltd.

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