Firm A acquires firm B. Market price of shares of B is Rs. 20 per share and EPS is Rs. 5, For an…
With an exchange ratio of 1.5:1, the acquirer effectively pays 1.5 × Rs. 20 = Rs. 30 for each share of firm B. Dividing this price by firm B's EPS of Rs. 5 gives the P/E…
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Firm A acquires firm B. Market price of shares of B is Rs. 20 per share and EPS is Rs. 5, For an exchange ratio of 1.5:1, what was the P/E ratio used in acquiring firm B?
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Correct answer C
With an exchange ratio of 1.5:1, the acquirer effectively pays 1.5 × Rs. 20 = Rs. 30 for each share of firm B. Dividing this price by firm B's EPS of Rs. 5 gives the P/E ratio used in the acquisition: 30 / 5 = 6.
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