Rahul Ltd. has surplus cash of ₹ 100 lakhs and wants to distribute 27% of it to the shareholders. The company decides to buy back shares. The…
CA Final · Advanced Financial Management · MTP · November 2026
Rahul Ltd. has surplus cash of ₹ 100 lakhs and wants to distribute 27% of it to the shareholders. The company decides to buy back shares. The Finance Manager of the company estimates that its share price after re-purchase is likely to be 10% above the buyback price-if the buyback route is taken. The number of shares outstanding at present is 10 lakhs and the current EPS is ₹ 3.You are required to determine:(i) The price at which the shares can be re-purchased, if the market capitalization of the company should be ₹ 210 lakhs after buyback,(ii) The number of shares that can be re-purchased.
Suggested Answer and Working Notes:
(i) Let P be the buyback price decided by Rahul Ltd.Market Capitalisation after Buyback1.1P (Original Shares – Shares Bought Back)= 1.1P [10 lakhs - (27% of 100 lakhs / P)]= 11 lakhs x P - 27 lakhs x 1.1 = 11 lakhs P - 29.7 lakhsAgain, 11 lakhs P – 29.7 lakhsor 11 lakhs P = 210 lakhs + 29.7 lakhsor P = 239.7 / 11 = 21.79 per share(ii) Number of Shares to be Bought Back :-₹ 27 lakhs / 21.79 = 1.24 lakhs (Approx.) or 123910 share
Topics: Security Valuation
Related Questions in this Topic
- Shares of V Ltd. are currently quoted at a trailing Price-to-Earnings (P/E) ratio of 8 times. As per the existing policy...
- Mr. A is thinking of buying shares at 500 each having face value of 100. He is expecting a bonus at the ratio of 1: 5 du...
- The data given below relates to a convertible bond: Face value 1,000 Coupon rate 12% No. of shares per bond...
- XYZ Ltd. recently paid a dividend of 40. The company is entering a 5-year transition phase where its current 15% growth ...
- Identify the type of risks to which the Bond Funds are exposed to.