1. Let A stand for Ajeet and J for Jeet PVA = Rs.60 x 300,000 = Rs.18 million PVJ = Rs.

25 x 200,000 = Rs.5 million Benefit = Rs.4 million PVAJ = 18 + 5 + 4 = Rs.23 million Exchange ratio = 0.5 The share of Jeet in the combined entity will be : 100,000 = = 0.25 300,000 + 100,000 a) True cost to Ajeet Company for acquiring Jeet Company Cost = PVAB - PVB = 0.25 x 27 - 5 = Rs.1.75 million b) NPV to Ajeet = Benefit - Cost = 4 - 1.75 = Rs.2.25 million c) NPV to Jeet = Cost = Rs.1.75 million

7. (a) The maximum exchange ratio acceptable to shareholders of Vijay Limited is : S1 ER1 = S2 12 = 8 + 30 x 8 + P1S2 (36+12) 8 = 0.1 (E1+E2) PE12

(b) The minimum exchange ratio acceptable to shareholders of Ajay Limited is :

P2 S1 ER2 = (PE12) (E1+E2) - P2 S2 9 x 12 = 9 (36+12) - 9 x 8 = 0.3

(c) ER1 ER2 = -

12 + 8

(48) PE12 240 9 x 12

= PE12 (48) - 72

Equating ER1 and ER2 and solving for PE12 gives, PE12 = 9 When PE12 = 9 ER1 = ER2 = 0.3 Thus ER1 and ER2 intersect at 0.3