GL Ltd. is having a Price Earnings Ratio (P/E Ratio) of 16 times and Earnings per Share (EPS) of 5. The total numbers of outstanding shares are…

(i) Pre Merger EPS No. of shares to be issued by GL to FL (50,000 x 4/5) 40,000 Existing number of shares of GL 2,80,000 Total no. of shares Post Merger 3,20,000 EPS (Post Merger) 5.40 Post-Merger (Total Earning) 17,28,000 Less: Pre-Merger Earning of BL (2,80,000 x 5) 14,00,000 Pre-Merger Earning of FL 3,28,000 Number of shares of FL (Existing) 50,000 EPS (3,20,000/50,000) 6.56 (ii) Number of shares to be issued to FL to maintain Pre-Merger EPS 5.00 = 17,28,000/(2,80,000 + X) 14,00,000 + 5X = 17,28,000 X = 65,600 Thus, 65,600 shares to be issued by GL to FL to maintain pre-merger EPS. Alternatively, it can also be computed as follows: Swap Ratio if EPS before merger is maintained by GL Then, Swap Ratio = 6.56 / 5 = 1.312 Number of shares of GL is to be issued to FL is 50000 shares x 1.312 = 65,600 shares