Question

14. Intrinsic value of each equity share of
the transferor company is Rs. 250 and
that of the transferee company is Rs.
400. The ratio of exchange of shares on
the basis of intrinsic value is ..........
0 O
2:1
8:8
O 8:5
9:7​

Answer 1

Given,

The intrinsic value of each equity share of transferor company = Rs.250

The intrinsic value of each equity share of transferee company = Rs.400

To Find,

The exchange ratio.

Solution,

The exchange ratio determines the number of shares to be issued by acquiring company to each share of a target company.

The exchange ratio can be calculated by the following formula:

Exchange ratio = $\frac{Target shareprice}{Acquirer share price}$

⇒$\frac{400}{250} = 8:5$

Henceforth, the exchange ratio is 8:5.