Merger Acquistion And Restructuring Numerical
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Advanced Business and Financial Management — CAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
If Company A has a P/E ratio of 20 and EPS of ₹15, what is the market price per share?
Market price = P/E × EPS = 20 × ₹15 = ₹300 per share. This P/E method is widely used to value acquirer and target companies in merger negotiations.
If a target company has EPS of ₹10 and the acquirer offers an exchange ratio of 1.5, what is the effective price per share offered?
Effective price equals exchange ratio multiplied by acquirer share price.
How is the Exchange Ratio calculated in a stock-for-stock merger?
Exchange Ratio = Offer Price per Target Share / Acquirer's Market Price per Share. For example, if Target share is offered at ₹200 and Acquirer trades at ₹400, the exchange ratio is 0.5 shares of acquirer per target share.
What is the formula for calculating the merger premium percentage?
Merger premium % = (Offer price – Market price) / Market price × 100.
What is the formula for calculating Earnings Per Share (EPS) post-merger?
Post-merger EPS = Combined Net Earnings / Total Number of Shares Outstanding after Merger. This figure determines whether the merger is accretive or dilutive for the acquiring company's shareholders.
If the post-merger combined EPS is higher than the acquirer's pre-merger EPS, what is this situation called?
It is called EPS accretion or an accretive merger.
Company A earns ₹50 lakh net profit with 10 lakh shares; Company B earns ₹20 lakh with 5 lakh shares — what is the combined EPS if A issues 4 lakh new shares to acquire B?
Combined earnings = ₹70 lakh; Total shares = 10 + 4 = 14 lakh; Post-merger EPS = ₹70/14 = ₹5 per share. If pre-merger EPS of A was ₹5, the merger is EPS-neutral.
How is the intrinsic value per share calculated using the book value method?
Intrinsic value = (Total assets – Total liabilities) / Number of shares outstanding.
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