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

Case: Veda Motors Ltd (EPS Rs 40, P/E 15) plans to acquire Sundaram Auto Components Ltd (net profit Rs 90 crore, 3 crore shares, i.e. EPS Rs 30) by a share exchange at a ratio of 0.8 Veda share for each SACL share. Veda has 10 crore shares and no synergies are assumed. What is the post-merger EPS of Veda Motors?

Post-merger EPS is Rs 38.46 as keyed, but the working gives Rs 39.52.

  1. ARs 38.46Correct
  2. BRs 40.00
  3. CRs 41.94
  4. DRs 36.77

Explanation

Veda's earnings = 40 x 10 = Rs 400 crore. Combined earnings = 400 + 90 = Rs 490 crore. New shares issued = 3 x 0.8 = 2.4 crore, so total shares = 12.4 crore. EPS = 490/12.4 = Rs 39.52. Check: 490/12.4 = 39.516, so the correct figure is Rs 39.52, and the listed options do not contain it; see revised key below.

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