Question: valuation model all information are correct 2017 - Dec [7] (a) A Ltd., is considering the acquisition of B Ltd., with stock. Relevant financial information

valuation model all information are correct 2017 - Dec [7] (a)

valuation model

all information are correct

2017 - Dec [7] (a) A Ltd., is considering the acquisition of B Ltd., with stock. Relevant financial information is given below: Particulars A Ltd. B Ltd. Present earnings (*). 7.5 Lakhs 2.5 Lakhs Equity (no. of shares) 4.0 Lakhs 2.0 Lakhs EPS () 1.875 1.25 P/E ratio 10 5 Answer the following questions: (i) What is the market price of each company? (ii) What is the market Capitalization of each company? (iii) If the P/E of A Ltd., changes to 7.5, what is the market price of A Ltd.? (iv) Does market value of A Ltd., change? (v) What would be the exchange ratio based on Market Price? (Take the revised price of A Ltd.) (2 x 5 = 10 marks)

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