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How do find out the number of shares to be issued

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Reference no: EM132618588

RST garments Ltd. has annual earnings of Rs. 20,00,000. The equity shares have a market price of Rs. 100 per share and P/E ratio of 12. The earnings, market price and P/E ratio are not expected to change during next few years. However, earnings can be increased by Rs. 4,00,000, 7,00,000 and 2,00,000 during next three years if XYZ Threads Ltd. is merged into it.

The shareholders of XYZ Threads Ltd. have agreed for proposal on the following terms:

  1. The RST Garments Ltd. will issue 1,00,000 equity shares immediately.
  2. Such number of equity shares will be issued at market price of Rs. 100 each in each of the next 3 years, as the issue price is equal to the incremental earnings after merger in that times the P/E ratio.

Problem 1: You are required to find out the number of shares to be issued in each next three years.

Reference no: EM132618588

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