The company ABC Ltd. proposes to take over XYZ Ltd. The chief executive of the company thinks that shareholders always look for the earnings per…
CA Final · Advanced Financial Management · MTP · November 2026
The company ABC Ltd. proposes to take over XYZ Ltd. The chief executive of the company thinks that shareholders always look for the earnings per share. Therefore, he considers maximization of the earnings per share as his company's objective. The following information is available in respect of ABC Ltd. and XYZ Ltd. ABC Ltd. XYZ Ltd. Net Profit (Post Tax) ₹ 400 Lakh ₹ 315 Lakh P/E ratio 10.50 10.00 Current market price per share ₹ 840 ₹ 1700 The company is planning to borrow funds @ 15% rate of interest and buys out the target company by paying cash. Assume tax rate @30%. From the information given above, choose the correct answer to the following questions:
Suggested Answer and Working Notes:
Correct Answer: Option (A)
₹ 3150 lakh
Topics: Mergers, Acquisitions and Corporate Restructuring
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