B Ltd is a very successful company and wants to expand by acquiring other companies. Its expected high growth in profits and dividends is reflected in its PE ratio of 17. The B Ltd. Board of Directors has been told that if it were to take control of companies with a PE ratio lower than its own, it would use a share-for-share ratio. exchange, then it could increase its reported earnings per share. C Ltd has been suggested as a possible target for an acquisition having a PE ratio of 10 and 1,00,000 outstanding shares with a share price of Rs.15. B Ltd has 5,00,000 shares outstanding with a share price of Rs.12.

Calculate the change in EPS of B Ltd. if it acquires the whole of C Ltd. by issuing shares at its market price of Rs.12. Assume that the share price of B Ltd. remains constant.

Answer rating: 100% (QA)

Calculate the earnings of B Ltd before the acquisition B Ltd has 500000 outstanding shares and a sha... View the full answer