2. B Ltd is a highly successful company and wishes to expand by
acquiring other firms. Its expected high growth in earnings and
dividends is reflected in its PE ratio of 17. The Board of
Directors of B Ltd. has been advised that if it were to take over
firms with a lower PE ratio than its own, using a share for share
exchange, then it could increase its reported earnings per share. C
Ltd has been suggested as a possible target for a takeover which
has a PE ratio of 10 and 1,00,000 shares in issue with a share
price of Rs.15. B Ltd has 5,00,000 shares in issue with a share
price of Rs.12.
Calculate the change in EPS of B Ltd. if it acquires the whole of C
Ltd. by issuing shares at its market price of Rs.12. Assume the
price of B Ltd. shares remain constant.