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CA Intermediate · Financial Management and Strategic Management · Scope and Objectives of Financial Management

Aarav Textiles Ltd has 4,00,000 equity shares outstanding. Its net profit after tax is ₹80,00,000 and its shares trade at a price-earnings ratio of 12. If the company undertakes a project that raises the market price per share by ₹6 without changing the share count, what is the increase in shareholders' wealth?

The increase in shareholders' wealth is ₹24,00,000. Wealth change equals the rise in market price per share, ₹6, multiplied by the 4,00,000 shares outstanding. The earnings and P/E data merely give the existing price and do not alter this increase.

  1. A₹24,00,000Correct
  2. B₹2,40,000
  3. C₹80,00,000
  4. D₹6,00,000

Explanation

Increase in wealth = rise in price per share × number of shares = ₹6 × 4,00,000 = ₹24,00,000. The figure ₹2,40,000 results from a decimal slip. The EPS (₹20) and P/E data only give the current price of ₹240 and are not needed for the increase.

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