P Ltd. is studying the possible acquisition of Q Ltd. which is also in same industry by way of merger. The following data are available: Firm…

CA Final · Advanced Financial Management · MTP · May 2026
P Ltd. is studying the possible acquisition of Q Ltd. which is also in same industry by way of merger. The following data are available: Firm After-tax earnings No. of equity shares Market price per share Book Value Per share P Ltd. 10,00,000 2,00,000 75 210 Q Ltd. 3,00,000 50,000 60 105 Board of Directors of both the companies are in the process of negotiating the terms of proposed merger. In case if P Ltd. considers to buyout Q Ltd. by paying in cash, then it shall borrow the required funds @ 15% rate of interest per annum. Both companies are in the tax bracket of 35%.
(A) 0.33
(B) 1.20
(C) 1.30
(D) 1.10

Suggested Answer and Working Notes:

Correct Answer: Option (B)

1.20

Topics: Mergers, Acquisitions and Corporate Restructuring, Interest Rate Risk Management

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