It is given that net assets available for equity and preference shares amount to Rs.
1,87,000. The paid-up capitals are—10,000 equity shares of Rs. 4 each and 5,000
preference shares of Rs. 10 each. Therefore, value of a preference share will be—
Answers
Answer:
Problem 14: The issued share capital ofVinayaka Ltd. was Rs. 10,00,000
consisting of 10,000 equity shares of Rs.100 each. The net profits of the
last 5 years were:
Re. 1,00,000; Rs.80,000; Rs. 1,20,000, Rs.1,60,000 and Rs.1,40,000.
Out of the profit, 20% was transferred to reserve. Fair return on capital employed is 12%.
Compute the value of the equity share by yield method.
Solution:
Step1: Calculation of expected profit/ Average profit
Total profit of 5 years=
1,00,000+80,000+1,20,000+1,60,000+1,40,000=Rs.6,00,000
Average profit = 6,00,000/5 Years= Rs.1,20,000
Step 2:Calculation of profit available for equity dividend Rs.
Expected Profit/ Average Profit
Transfer to general reserve:20% of 1,20,000
1,20,000
24,000
Profit available for equity dividend 96,000
Step 3: Calculation of expected rate of return
Profit available for equity dividend
Expected rate of return = x Rs.100
Paid up equity capital
96000 x 100 = 9.6%
1000000
Step 4: Calculation of value of equity share
Expected rate of return
Yield value per share =
Normal rate of return
xPaid up value
Yield value per share 9.60 100 Rs.80D
12%
The expected return is lower than the normal return. So, the value of the
share is lower than the paid up value.
Problem 15: Yellow Ltd. has 10,000 equity shares of Rs.10 each, Rs.8
paid and 1,00,000 6% preference shares of Rs.10 each, fully paid. The
company transters 20% of the profit to general reserve every year Ihe
expected profit (based on past year's performance) before tax is Rs.2,0000YIELD METHOD
Problem 13: Kala holds 5,000 shares in Ginger Ltd. The paid un.
. It is ascertained th
p apital
of the conmpany
is 30,000 equity shares of Re.1 each.
a. normal net profit of such a company
is Rs.5,000 and
on by the
b. the normal return for the type of business carried on h a
Kala requests you to value her shares based on the above figures.
(B.C.S, M.Com., Madras)
company is 8%.
Solution:
Step 1: Calculation of expected rate of return
Profit available for equity dividend
x Rs.100 Expected rate of return =
Paid up equity capital
5,000100 16.67%
30,000
Step 2: Calculation of value of equity share
Yield value per share =
Expected rate of return
x Paid up value
Normal rate of return
16.67% Yield value per share: x 1= Rs.2.08
8%
No. of shares held by Kala = 5,000
Value of shares held by Kala = Rs.2.08 X 5000 = Rs.10,400D