CA Intermediate · Financial Management and Strategic Management · Scope and Objectives of Financial Management
Anita Engineering Ltd. has 5,00,000 equity shares with a current market price of ₹120 per share. A new project has an NPV of ₹40,00,000, and the market is expected to fully reflect this. What will be the expected market price per share after the project is accepted?
The expected price is ₹128 per share. Market capitalisation of ₹6,00,00,000 rises by the project NPV of ₹40,00,000 to ₹6,40,00,000, and dividing by 5,00,000 shares gives ₹128, an increase of ₹8 per share.
- A₹120
- B₹128Correct
- C₹160
- D₹125
Explanation
Current market capitalisation = 5,00,000 × ₹120 = ₹6,00,00,000. Adding NPV of ₹40,00,000 gives ₹6,40,00,000. Dividing by 5,00,000 shares gives ₹128. Check: NPV per share = 40,00,000/5,00,000 = ₹8, and 120 + 8 = 128. Option ₹160 wrongly adds NPV per share as ₹40.
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