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

Rohan Foods Ltd. has 4,00,000 equity shares outstanding. Its net present value of all future cash flows to equity is estimated at ₹60,00,000 more than the current market capitalisation of ₹2,40,00,000, if a new project is accepted. Using the wealth maximisation approach, what is the expected value per share after the project is accepted (assuming the NPV accrues fully to shareholders)?

Value per share is ₹75. Post-project equity value equals current market capitalisation of ₹2,40,00,000 plus NPV of ₹60,00,000, which is ₹3,00,00,000, divided by 4,00,000 shares.

  1. A₹60
  2. B₹65Correct
  3. C₹75
  4. D₹15

Explanation

Current market value = ₹2,40,00,000. Add NPV of ₹60,00,000 to get ₹3,00,00,000. Dividing by 4,00,000 shares gives ₹75. Wait: check: 3,00,00,000/4,00,000 = 75. So the correct value is ₹75, which is option 3 not option 2.

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