Read the case given below and answer the questions given at the end.

CASE STUDY – 1

Star Ltd. is considering merger with Moon ltd. Star Ltd‘s share are currently traded at Rs. 30.00 Per Share. It has 3000 shares outstanding. Its earnings after taxes (EAT) amount to ` 6,00,000. Moon Ltd. has 1,60,000 shares outstanding and its current market price is ` 15.00 per share and its earnings after taxes (EAT) amount to ` 1,60,000. The merger is decided to be effected.

by means of a stock swap (exchange). Moon Ltd has agreed to proposal by which Star Ltd will offer the current market value of Moon Ltd‘s shares

.
Find out:

a. The pre-merger earnings per share (EPS) and Price/earnings (P/E) ratios of both the companies.

b. If Moon Ltd‘s P/E Ratio is 9.6, what is its current Market Price? What is the Exchange Ratio? What will Star Ltd. post merger EPS
be?

c. What should be the exchange ratio; if Star Ltd‘s pre-merger and post-merger EPS are to be the same?