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

Sundaram Foods Ltd. has 10,00,000 equity shares with a current market price of Rs 120 per share. The firm is considering a project which, if accepted, is expected to raise the market value of the firm by Rs 2,50,00,000 above the present value of the firm's equity. Assuming no new shares are issued, what will be the expected market price per share after acceptance?

The expected price is Rs 145 per share. Current equity value is Rs 12 crore (10 lakh shares at Rs 120); adding the Rs 2.5 crore increase gives Rs 14.5 crore, and dividing by 10 lakh shares yields Rs 145.

  1. ARs 145Correct
  2. BRs 120
  3. CRs 95
  4. DRs 125

Explanation

Present market value of equity = 10,00,000 x 120 = Rs 12,00,00,000. Add the increase of Rs 2,50,00,000 = Rs 14,50,00,000. Divided by 10,00,000 shares gives Rs 145. Rs 125 wrongly divides the increase by 20 lakh or ignores scale; Rs 95 subtracts the gain.

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