Bell Limited is planning to merge with (take over) Ring Limited. The following is the data regarding both the companies: Bell Ltd. Ring Ltd. Paid up Capital ₹40,00,000 ₹24,00,000 (Fully Paid Up Equity Shares of ₹10 each)

Step -1 Earnings per share method Earnings per share (EPS): Profit after tax/Total number of shares Bell Ltd. Ring Ltd. EPS (₹) 5 (20,00,000/4,00,000) 6 (14,40,000/2,40,000) No. of shares to be issued to shareholders of Ring Ltd. = 6/5 × 2,40,000 = 2,88,000 shares Step-II Market Price method Market Price (₹) 40 24 No. of shares to be issued to shareholders of Ring Ltd. = (Market price of shares of Ring Ltd./Market price of shares of Bell Ltd.) x Total shares of Ring Ltd. No. of shares to be issued to shareholders of Ring Ltd. = 24/40 × 2,40,000 = 1,44,000 shares Since Bell Ltd. is required to issue half the number of shares to Ring Ltd. under market price method as compared to EPS method. So, Bell Limited should offer exchange ratio on the basis of Market Price.