If the agreed exchange ratio is one share of Long Ltd., for every three shares of Tall Ltd., in lieu of the cash acquisition as per (i) above, what…

(ii) Net Cost of acquisition in case of exchange of shares: Exchange ratio = 1 share of Long Ltd for every 3 shares of Tall Ltd. Number of shares to be issued in Long Ltd. (18,00,000/3) = 6,00,000 shares Total no. of shares in Long Ltd. after merger (30,00,000 + 6,00,000) = 36,00,000 Calculation of cost of Equity of Tall Ltd. = D1/Po +g Growth rate under new management after acquisition = 3/50 + 0.06 = 12% Value of Merged company assuming perpetual growth = 8% Value of merged company (180x 30,00,000) + (₹ 3/ (0.12 - 0.08) x 18,00,000) = 67,50,00,000 = 54,00,00,000 + (75 X 18,00,000) Value per share of merged company (67,50,00,000/36,00,000) = 187.50 per share Calculation of net cost of acquisition Gross cost of acquisition (6,00,000 x 187.50) 11,25,00,000 Less: CMP (18,00,000 x 50) 9,00,00,000 Net Cost of acquisition 2,25,00,000 Alternatively, Net Cost of Acquisition can also be computed as follows: No. of shares issued to shareholders of Tall Ltd. in the ratio of 1:3 6,00,000 Existing price of one share of Long Ltd. 180 Value of consideration paid for acquisition of Tall Ltd. 10,80,00,000 Less: Existing Value of Tall Ltd., as a separate entity 9,00,00,000 Net Cost of acquisition of Tall Ltd. 1,80,00,000