In the given question, TYK5/SM PG NO.13.39 while solving part II why 20 lakhs has been taken instead of (20 lakhs + 1.5*2.625 Lakhs)??
PraveenAgBeginner
MERGERS & ACQUISITIONS
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Hey Praveen,
Because cash consideration is being considered in the question.
Answer has wordings “Number of shares to be issued” that is wrong or misprint.
Question is asking about cash consideration to be paid. So tone of the question is
” If I want to maintain my EPS of Rs. 4 that is I want to earn Rs 80Lakh (EPS 4 * Shares 20,00,000), after acquiring Target company, which means i will add his profit with my profit but deduct the interest amount for the amount of money i have to borrow to give him cash consideration on acquisition and such interest amount should be post tax because Net profit is post tax ofc.”
So 80 + 15.75 – x*(15*0.7) = 4 * 20 lakhs
So make sure you understood the question’s requirement. It is asking cash consideration and not the shares to be issued. Share issue question for the first one.
I hope your doubt is clear. If not, ask again i will try my best to answer it. :))
All the best!
Thanks a lot, Mukti Patel.
Understood!!
the word used “no. of shares to be issued” confused me.
I thought it of as a exchange of Shares.