CMA Intermediate · Financial Management and Business Data Analytics · Capital Market
Meera Pharma Ltd announces a buy-back of equity shares through the tender offer route. Paid-up capital is ₹50,00,000 (5,00,000 shares of ₹10) and free reserves are ₹3,50,00,000. Assume the buy-back limit is 25% of the aggregate of paid-up capital and free reserves, and the post-buy-back debt-equity ratio condition is satisfied. The buy-back price is ₹80 per share. What is the maximum number of shares that can be bought back under this limit?
The limit is 25% of paid-up capital plus free reserves, i.e. 25% of ₹4,00,00,000, which is ₹1,00,00,000. Dividing by the buy-back price of ₹80 gives a maximum of 1,25,000 shares.
- A1,25,000 sharesCorrect
- B1,00,000 shares
- C1,87,500 shares
- D12,500 shares
Explanation
Aggregate = 50,00,000 + 3,50,00,000 = ₹4,00,00,000. 25% = ₹1,00,00,000. Shares = 1,00,00,000 ÷ 80 = 1,25,000. Using only the free reserves base (₹87,50,000 ÷ 80) gives about 1,09,375, and the other options come from arithmetic slips, such as 1,00,000 from using ₹80,00,000.
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