Company X Company Y

EPS 4 2.25
No shares 300,000 200,000
NPAT 1200000 450000

Exhange ratio = EPS of Target (Y)/EPS of acquiring (X) 0.5625

No shares that X Ltd will issue to issue to Y Ltd 112500

Total no of shares
Company X 300,000
Company Y 112500
Total no shares of X 412,500
Total NPAT of merged entity 1650000
Post Meger EPS of X Ltd = NPAT/ No of Equity shares 4
 Acq Target
XYZ PQR
EPS 5 4
No of shares - Lacs 200 80 Lacs
NPAT =EPS* No of shares 1000 320 Lacs

Synergy 200 Lacs

EPS Post merger of XYZ NPAT/ No of Equity shares

EPS Post merger of XYZ 6

NPAT {(XYZ + PQR) + Synergy} 1520
No of shares 200+x

6= 1520/ (200+X)
X= 53.33
Post Meger no of shares / Pre Merger no of shares
Exchange Ratio 0.6666 53.33 / 80

Total NPAT 1520

No of Shares of XYZ 200

No of Shares of PQR 53.33
Total No of shares 253.33

Post Merger EPS 6.00

EPS Post merger of XYZ NPAT
No of Equity shares

6 1520
200 + X

200 + X 1520
6

200 + X 253.33

X 53.33

EPS Post merger of XYZ NPAT

No of Equity shares

1520
253.33

EPS Post merger of XYZ 6.00

NPAT of both the companies + synergy
No of shares of both the companies (Accd to exch ratio)
 A Ltd B Ltd
NPAT 1,000,000 300,000
No of shares 200,000 50,000
MPS 75 60
EPS 5 6

(a) Exchange ratio with MPS = MPS of B / MPS of A 0.8

No of shares issued by A to B 40000

Post merger EPS of A Ltd

NPAT 1,300,000
No of shares 240,000
Post merger EPS 5.42

(b)
6= 13,00,000/ ( 2,00,000 + x)
x= 16,667
Exchange ratio 0.33334

Total NPAT 1,300,000

No of Shares of A Ltd 200,000

No of Shares of B Ltd 16667
Total No of shares 216667

Post Merger EPS 6.00

EPS Post merger NPAT
No of Equity shares

6 1,300,000
200000 + X

200000 + X 216,667
X 16,667
NPAT of both the companies + synergy
No of shares of both the companies (Accd to exch ratio)
MPS of C Ltd 15 PE Ratio
P/E of C Ltd 10 Price to Earning Ratio
EPS of C Ltd 1.5 The ratio of share price of a stock to its earnings per sh
No of shares 100,000 To determine the P/E value, one simply must divide th
Total earnings of C Ltd (NPAT) 150,000
Market value of C Ltd 1,500,000

MPS of B Ltd 12 PE Ratio MPS 17

P/E of B Ltd 17 EPS
EPS of B Ltd 0.706 MPS / (P/E)
No of shares 500000
Total earnings of B Ltd 352941 EPS * No of Shares

The no of shares to be issued by B Ltd 125,000 Market value of C Ltd / MPS of B Ltd

Post Merger EPS

Total NPAT 502941
No of shares 625000
Post Merger EPS 0.804706

Change in EPS of B Ltd 0.098824 Gain

ice of a stock to its earnings per share (EPS).
E value, one simply must divide the current stock price by the earnings per share (EPS).

12 X = 12/17 0.705882
X

500000 0.706 353000 352941.2

d / MPS of B Ltd 1500000

Q5 MK Ltd NN Ltd
NPAT 6,000,000 1,800,000
No of shares 1,200,000 300,000
MPS 200 160
EPS 5 6

Exchange based on MPS 0.8

MPS of NN/ MPS of Acquiring

No of shares issued by MK Ltd to

shareholders of NN Ltd 240000

Total NPAT 7,800,000

Total no of shares 1,440,000
Post Merger EPS of MK Ltd 5.42

(b)
6= 78,00,000/ (12,00,000+ x) EPS Post merger of NN
x= 1,00,000 0.333
Exchange ratio
NPAT NPAT of both the companies + synergy
No of Equity shares No of shares of both the companies (Accd to exch ratio)
Q6
ABC XYZ
No of Shares 1,000,000 600,000
NPAT 5,000,000 1,800,000
MPS 42 28

Present EPS 5 3

Exchange on MPS 0.667 Target Co / Acq Co

New Shares to XYZ 400,000

Total Shares 1,400,000

Total NPAT 6,800,000

New EPS 4.857

Total NPAT 6,800,000

NEW EPS 3 3 = 6800000
X
X = 2266667 Total no of shares

Old Shares 1000000

New 1266667

Exchange Ratio 2.111

Total no of shares
 A Ltd T Ltd
NPAT 1,800,000 360,000
No of Equity shares 600,000 180,000
EPS 3 2
P/E 10 7
MPS 30 14

(a) and (b) Post merger EPS

No of shares issued by A Ltd to T Ltd 90000
Total NPAT 2,160,000
No of shares 690,000
Post Merger EPS 3.130

C: Equivalent EPS of T Ltd 1.565

(d) and (e) New market price of A Ltd and Market value of A Ltd (Assume P/E remains un changed)

Present P/E of A Ltd 10

Post merger EPS 3.13
MPS 31.3 IV
No of shares 690000
Market value 21597000 V
(A) Firm mark Limited Firm mask Limited
NPAT (in Lacs) 2000 400
Number of shares 200 100
EPS 10 4
P/E 10 5
MPS = (PE * EPS) 100 20

Exchange based on MPS 0.2

MPS of Mask/ MPS of Mark

(B)
No of shares issued by Mask to Mark
(IN LACS) 20

Total Profit 2400

No shares to be issued 220
Post merger EPS 10.909

(c)
P/E of Mark 10
EPS of Mark (after acquisition) 10.909
MPS of Mark (after acquisition) 109.091

(d) Market value of the merged entity

(in lacs) 24000

(e ) Firm mark Limited Firm mask Limited

Pre merger EPS 10 4
Post merger equivalent EPS 10.909 2.182
0.909000000000001 -1.818
Gain Loss
 XYZ ABC
No of Equity shares 1,000,000 400,000
EPS 40 28
MPS 250 160
NPAT 40,000,000 11,200,000
P/E 6.25 5.71

(a) Post merger EPS

No of shares issued by XYZ to ABC Ltd 280000

Total NPAT 51,200,000

No of shares 1,280,000
Post merger EPS 40

Impact of EPS XYZ ABC

Pre merger EPS 40 28
Post merger EPS 40 28
Impact of EPS NIL NIL

(b) Gain from merger by ABC if the exchange ratio 1: 1

No of shares issued by XYZ to ABC Ltd Ratio 1: 1 400,000

Total NPAT 51,200,000

No of shares 1,400,000
Post Merger EPS 36.571
P/E (XYZ) 6.25
Post Merger MPS 228.57
Pre Merger MPS 160.00
Gain to ABC from merger 68.57

( c ) Gain / Loss from merger for XYZ

Post merger MPS 228.57

Pre merger MPS 250.00
Loss by XYZ from merger -21.43

(d) Determine the maximum exchange ratio acceptable to shareholders of XYZ

Post Merger MPS 228.57
No. of Shares 1,280,000.00
Market Value 292,571,428.57
Existing Value of XYZ 250,000,000.00
Value of Merged entity available to shareholders of ABC 42,571,428.57
MPS 250.00
Total No. of shares to be issued to ABC 170,285.71
Existing Shares of ABC 400,000.00
Maximum exchange ratio acceptable to shareholders of XYZ 0.4257
 A Particulars XYZ ABC
EAT 500,000 125,000
No. of shares 250,000 125,000
EPS 2 1
MPS 20 10
P/E = MPS / EPS 10 10

B If ABC has a P/E ratio = 6.4

MPS = 6.4*1= 6.4

(b) Exchange ratio = MPS of target / MPS of acquiring 0.32 6.40/20

Post Merger EPS of XYZ

Total EAT 625,000
No of shares 290,000 250,000 40000
(2,50,000 + 40,000) 2.1552

(c) If exchange ratio based on earnings, premerger EPS and post merger EPS would be same

Exchange ratio based on EPS = EPS of target / EPS of acquiring

0.5 1/2

Post merger EPS for XYZ

Total EAT 625,000
No of shares 312,500 250,000 62500
(2,50,000 + 62,500) 2
 Particulars Mani Ratnam
EAT 2,000 4,000
No. of shares 200 1,000
EPS 10 4
P/E 10 5
MPS 100 20

(A) Exchange ratio = MPS of target / MPS of acquiring 0.2

(B) EPS after acquisition

Total EAT 6,000
No of shares 400
(200+ 200 (1000*0.2)
15

(C) MPS after acquisition if P/E reduces by 10% of Mani

EPS after acquisition 15

P/ E 9
MPS after acquisition 135

(D) Market value of merged entity

MPS 135
* No. of shares 400
Market value of merged entity 54,000

(E) Gain / loss to the share holder Mani Ratnam

Total value before Acquisition 20,000 20,000 20,000 20,000
Total value after Acquisition 27,000 27,000
Gain 7,000 7,000
No. of shares 200 1,000
Gain per share 35 7
Exchange ratio based on MPS = MPS OF TARGET CO/ MPS OF ACQUIRING CO

EPS (after acquisition)

NPAT ( 10 Lac + 7 Lac) 1,700,000
No of shares ( 4 lac + 2 lac) 600,000
EPS 2.83

(B) Rama Krishna

Before Acquistion EPS 2.5 3.5
After Acquistion EPS 2.83 2.83
(0.33 Lac) 0.67
(Increase in EPS) (Decrease in EPS)

( C ) Determine the market value of the post-merger firm. PE ratio is likely to remain the same.

P/E ratio of new firm 14

EPS 2.83
MPS 39.62
No of shares 600,000
Market value of merged entity 23,772,000
(6,00,000*39.62)

(D) Ascertain the profits accruing to shareholders of both the companies.

RAMA KRISHNA
Before merger market capitalisation 14,000,000 7,000,000
After merger market capitalisation 15,848,000 7,924,000 23,772,000
1,848,000 924,000 Gain
(Increase in MCAP)
1
(A) Exchange ratio based on MPS = MPS OF TARGET CO/ MPS OF ACQUIRING CO 0.8

NPAT 10,400,000
No of Equity shares 1,920,000
(16,00,000+ 3,20,000)

EPS POSTMERGER 5.42

(B) PRE-MERGER EPS

M 5

N 6

Exchange ratio based on EPS = EPS OF TARGET CO/ EPS OF ACQUIRING CO 1.2

New shares issued by M co to N co 480,000

NPAT 10,400,000
No of Equity shares 2,080,000
(16,00,000+ 4,80,000)
EPS after merger 5

Total earnings in M Co Ltd, is avaialble to new shareholder of N Co 2,400,000 480000*5

160/200

6/5
 Acq Target
Company X Y
No of Shares 300,000 200,000
MPS 30 20
EPS 4 2.25 EPS = PAT / No of Shares

Earnings (PAT ) = No of shares * EPS 1,200,000 450,000

Exchange Ratio EPS of Target Co / EPS of Acq Co

2.25 / 4
0.563

No of Shares that will be issued = 112,500 No of Shares of Target co * exchange rati

EPS after merger = PAT of both the companies + synergy

No of shares of both the companies (Accd to exch ratio)

1,200,000 450,000 1,650,000

300,000 112,500 412,500
 EPS = PAT / No of Shares

es of Target co * exchange ratio

4 Post merger EPS