Wishes to expand by acquiring other firms

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Reference no: EM131933632

B Ltd is a highly successful company and wishes to expand by acquiring other firms. Its expected high growth in earnings and dividends is reflected in its PE ratio of 17. The Board of Directors of B Ltd. has been advised that if it were to take over firms with a lower PE ratio than its own, using a share for share exchange, then it could increase its reported earnings per share. C Ltd has been suggested as a possible target for a takeover which has a PE ratio of 10 and 1,00,000 shares in issue with a share price of Rs.15. B Ltd has 5,00,000 shares in issue with a share price of Rs.12.

Calculate the change in EPS of B Ltd. if it acquires the whole of C Ltd. by issuing shares at its market price of Rs.12. Assume the price of B Ltd. shares remain constant.

Reference no: EM131933632

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