Swan Limited is the holding company of Duck Limited. Swan Limited wants to merge Duck Limited with it. Swan Limited holds 30,000 Equity Shares of ₹10 each fully paid up in Duck Limited. The following details are availabl

CS Professional · Corporate Restructuring, Valuation and Insolvency · PYQS · June 2017
Swan Limited is the holding company of Duck Limited. Swan Limited wants to merge Duck Limited with it. Swan Limited holds 30,000 Equity Shares of ₹10 each fully paid up in Duck Limited. The following details are available with us: Swan Ltd. Duck Ltd. Paid up Equity shares (₹10 each) 50,00,000 40,00,000 Market value of shares (Latest traded in Stock Exchange) 50 25 Profit After Tax (PAT) 25,00,000 12,00,000 Calculate the no. of shares Swan Ltd. will issue to the shareholders of Duck Ltd. If exchange ratio is on the basis of : Earning Per Share (EPS) Market Price.

Answer & Explanation:

Step-1 Earnings per share method Swan Ltd. Duck Ltd. EPS (₹) 5 (25,00,000/5,00,000) 3 (12,00,000/4,00,000) No. of shares to be issued: 3/5 × 3,70,000* = 2,22,000 shares Step-II Market Price method Market Prices (₹) 50 25 No. of shares to be issued: 25/50 × 3,70,000 = 1,85,000 shares Note: * Total No. of shares of Duck Ltd. – Shares held by Swan Ltd. : (4,00,000 - 30,000) = 3,70,000

Topics: Valuation

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