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

Rajesh Foods Ltd's shareholders hold 2,00,000 shares at a market price of ₹150. Management is considering a project requiring an outlay of ₹60,00,000 which has a present value of future cash inflows of ₹75,00,000. Assuming the market fully reflects the project's NPV, no other information changes, and all shareholders benefit, what will be the revised market price per share after the project is accepted?

The revised price is ₹157.50. The project's NPV is ₹15,00,000 (₹75,00,000 less ₹60,00,000), which adds ₹7.50 per share across 2,00,000 shares to the existing ₹150. Wealth is raised only by the NPV, not by the gross inflows.

  1. A₹157.50Correct
  2. B₹165.00
  3. C₹187.50
  4. D₹150.00

Explanation

NPV = 75,00,000 − 60,00,000 = ₹15,00,000. Market capitalisation before = 2,00,000 × 150 = ₹3,00,00,000. Adding the NPV gives ₹3,15,00,000, and dividing by 2,00,000 shares gives ₹157.50. The ₹165 option wrongly adds ₹15 per share, and ₹187.50 uses the inflow of ₹75,00,000 instead of the NPV.

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