Question

Shares of A ltd. and B Ltd.are currently traded at Rs. 100 and Rs. 25 respectively. The share swap ratio based on market price would be​

Answer 1

The Share Swap Ratio will be 1:4.

When the acquiring company acquires the share of the vendor company, the swap ratio will be used to calculate the exchange rate of shares between both companies. As most of the time, the share price of acquiring company is more than that of the vendor company.

The share swap ratio will be calculated as follows:

    = Market price of shares of vendor company / market price of shares    

        of  acquiring company

    = 25/100

    = 1/4

For every 1 share of acquiring company, vendor company needs to give 4 shares.