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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Advanced Financial Management

Case: Kaveri Foods Ltd has 10 crore shares at a market price of ₹60 and EPS of ₹5. Malabar Spices Ltd has 4 crore shares at market price ₹40 and EPS of ₹4. Kaveri offers 0.8 Kaveri share for each Malabar share. Assuming no synergy and that post-merger P/E equals Kaveri's existing P/E, what is the post-merger EPS of Kaveri?

Post-merger EPS is ₹5.00. Combined earnings are ₹66 crore (₹50 crore plus ₹16 crore) and shares after issuing 3.2 crore new shares to Malabar holders total 13.2 crore, so EPS equals 66 divided by 13.2, which is ₹5.00.

  1. A₹4.80
  2. B₹5.00
  3. C₹5.29Correct
  4. D₹4.62

Explanation

Kaveri earnings = 10 x 5 = ₹50 crore. Malabar earnings = 4 x 4 = ₹16 crore. New shares = 4 x 0.8 = 3.2 crore, total 13.2 crore shares. Combined earnings 66 crore / 13.2 = ₹5.00. Check: 66/13.2 = 5.00, so correct is ₹5.00.

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