Paarath Limited had recently repurchased 20,000 equity shares at a premium of 10% to its prevailing market price. The book value per share (after…

CA Intermediate · Financial Management and Strategic Management · MTP · September 2024
Paarath Limited had recently repurchased 20,000 equity shares at a premium of 10% to its prevailing market price. The book value per share (after repurchasing) is 193.20. Other Details of the company are as follows: Earnings of the company (before buyback) = 18,00,000 Current MPS is 270with a P/E Ratio of 18. CALCULATE the Book Value per share of the company before the re-purchase.

Suggested Answer and Working Notes:

I. No of Eq. Shares (before buyback) = Total Earnings (before buyback)/EPS = 18,00,000/(270/18) = 1,20,000 shares ii. Buyback price = 270 + 10% premium = 297 iii. No of Eq. shares (after buyback) = 1,20,000 (-) 20,000 = 1,00,000 shares iv. Total Book Value of Equity (after buyback) = 1,00,000 X 193.20 = 1,93,20,000 Now, Total BV of Eq. (after buyback) = Total BV of Eq.(before buyback) (-) Amt of buyback 1,93,20,000 = x (-) (20,000 X 297) Therefore x = Total BV (before buyback) = 2,52,60,000 BV per share (before buyback) = 2,52,60,000 / 1,20,000 = 210.50 per share

Topics: Part-A: Financial Management

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