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APPROACHES

TO EQUITY VALUATION


 
   
      

           


  

  

 

          


                



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Cash Inflow

Discount Rate (PVIF @ 25%)

Column 1 * 3

3.50

D

D

45

D

CF
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Year

Cash Inflow

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CE

D

D



F

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E

E

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3 Stable growth rate:


"(*#)2?$5)&7%"),%(%",%#$(=/('%(.%&3,$%*&)(9()(0(),33+(<-,3%&&)3($$%",0
%"(#0.-$%)+&)&9(),33('&0&2+?$5)&7%"),%(&)2-3%#0,%#&0,3*#)2$%"(5)&7%"),%(
#$%"(7&)3.('&0&2+?$),%(&*5)&7%"

3 Length of the high growth period:


"( 5)(,%() %"( '-))(0% 5)&7%" ),%( &* , *#)2?$ ',$" *3&7 )(3,%#9( %& %"( $%,13(5)&7%"
),%(%"(3&05()%"("#5"5)&7%"/()#&.

"()( ,)( $(9(),3 .#9#.(0. .#$'&-0% 2&.(3$ 1,$(. &0 .#**()(0% ,$$-2/%#&0$ *&) %"(
',3'-3,%#05%"(9,3-(&*%"($%&'8&2(&*%"(2,)(

   

&).&0 &.(3,3$&80&70,$&0$%,0%)&7%" &.(3"(&).&05)&7%"2&.(3',0


1(-$(.%&9,3-(,*#)2%",%#$#0@$%(,.+$%,%(@7#%".#9#.(0.$5)&7#05,%,),%(%",%',0
1( $-$%,#0(. *&)(9() "( &).&0 5)&7%" 2&.(3 #$ 1($% $-#%(. *&) *#)2$ 5)&7#05 ,% ,
),%('&2/,),13(%&&)3&7()%",0%"(0&2#0,35)&7%"#0%"(('&0&2+,0.7"#'"",9(
7(33 ($%,13#$"(..#9#.(0. /,+&-% /&3#'#($ %",% %"(+ #0%(0. %& '&0%#0-(#0%& %"( *-%-)(
"(.#9#.(0./,+&-%&*%"(*#)2",$ %&1( '&0$#$%(0%7#%" %"(,$$-2/%#&0 &*$%,1#3#%+
$#0'($%,13(*#)2$5(0(),33+/,+$-1$%,0%#,3.#9#.(0.$
''&).#05%&%"(2&.(3%"(9,3-(&*%"($%&'8#$5#9(01+

,3-(&*%"(%&'8M N5
)5

H"()(
M=/('%(. #9#.(0.$()",)(.-)#050(=%/()#&.
)M(<-#)(.),%(&*)(%-)0*&)(<-#%+#09($%&)$
5M)&7%"),%(#0.#9#.(0.$*&)(9()

For Example:
GU%.",.(,)0#05/()$",)(&*$F3,$%+(,),0./,#.&-%EI&*#%$(,)0#05,$
.#9#.(0.$ %?$(,)0#05,0..#9#.(0.",.5#9(0,%I/()+(,)#0%"(3,$%+(,)$,0.,)(
(=/('%(.%&5)&7,%%"($,2(),%(#0%"(3&05%()2"()(<-#)(.),%(&*)(%-)0&0%"(
$%&'8&*GU%.#$I&2/-%(%"(,3-(&*%"(%&'8-$#05&).&0?$ &.(3

Solution:
M$F

ME
MEF
M$ED
=/('%(.5)&7%"),%(#0(,)0#05$,0..#9#.(0.$MI
,3-(&*%"(<-#%+M N5
)5
MEDN

MFDF
"()(*&)(,3-(&*",)(&*GU%.MRs 68.64




    $

3 "(-$(&*%"#$2&.(3#$)($%)#'%(.%&*#)2$%",%,)(5)&7#05,%,$%,13(),%("(
,$$-2/%#&0 %",% %"( 5)&7%" ),%( #0 .#9#.(0.$ ",$ %& 1( '&0$%,0% &9() %#2( #$ ,
.#**#'-3%,$$-2/%#&0%&2((%($/('#,33+5#9(0%"(9&3,%#3#%+&*(,)0#05$

$$-2(.5)&7%"),%(2,+1(#0'&))('%

3 "(5)&7%"),%(#$(<-,3%&%"()(<-#)(.),%(&*)(%-)0%"(0%"(9,3-(&*%"($%&'8
,//)&,'"($#0*#0#%+ *%"(5)&7%"),%(#$"#5"()%"(0%"()(<-#)(.),%(&*)(%-)0
%"(0 %"( 9,3-( &* %"( $%&'8 1('&2($ 0(5,%#9( *#)2 ',00&% 5)&7 #0 %"( 3&05
%()2,%,),%(#0%"(('&0&2+
3 "(*,3$(,$$-2/%#&0#$%",%#09($%&)$7#33"&3.$",)($*&)#0*#0#%(/()#&.&*%#2(

P    
 
"('&0$%,0%5)&7%",$$-2/%#&02,+0&%1()(,3#$%#'#02,0+$#%-,%#&0$"(5)&7%"#0
.#9#.(0.$2,+1(,%9,)+#05),%($ %+/#',3$#%-,%#&0*&)2,0+'&2/,0#($2,+1(%",%
,/()#&.&*(=%),&).#0,)+5)&7%"(#%"()5&&.&)1,.7#33/)(9,#3*&),'()%,#00-21()
&* +(,)$ ,*%() 7"#'" 5)&7%" 7#33 '",05( %& , 3(9(3 ,% 7"#'" #% #$ (=/('%(. %& '&0%#0-(
#0.(*#0#%(3+"#$$#%-,%#&0',01()(/)($(0%(.1+, -3%#/3()&7%" &.(3 ,3$&80&70
,$- two stage growth model
0 %"#$ 2&.(3 %"( *-%-)( %#2( /()#&. #$ 9#(7(. ,$ .#9#$#13( #0%& %7& .#**()(0% 5)&7%"
$(52(0%$ %"( #0#%#,3 (=%),&).#0,)+ 5)&7%" /()#&. ,0. %"( $-1$(<-(0% '&0$%,0% 5)&7%"
/()#&. -)#05%"(#0#%#,3/()#&.5)&7%"),%($7#331(9,)#,13(*)&2+(,)%&+(,)7"#3(
.-)#05%"($-1$(<-(0%+(,)$%"(5)&7%"),%(7#33)(2,#0'&0$%,0%*)&2+(,)%&+(,)
"( 2&.(3 ',0 1( ,.,/%(. %& 9,3-( '&2/,0#($ %",% ,)( (=/('%(. %& /&$% 3&7 &) (9(0
0(5,%#9(5)&7%"),%($*&),*(7+(,)$,0.%"(0)(9()%1,'8%&$%,13(5)&7%" ''&).#05
%&%"(2&.(3%"(9,3-(&*%"($%&'8#$5#9(01+

,3-(&*%"($%&'8M&*.#9#.(0.$.-)#05$-/()0&)2,35)&7%"N
&*%()2#0,3/)#'(

Example
'&2/,0+/,#.,.#9#.(0.&*$ E/()$",)(.-)#05%"('-))(0%+(,) %#$(=/('%(.
%&/,+,.#9#.(0.&*$/()$",)(.-)#05%"(0(=%+(,) 09($%&)*&)(',$%,.#9#.(0.&*
$C ,0. $CE /() $",)( )($/('%#9(3+ .-)#05 %"( $-1$(<-(0% +(,)$

*%() %",% #% #$

(=/('%(.%",%,00-,3.#9#.(0.$7#335)&7,%I/()+(,)#0%&,0#0.(*#0#%(*-%-)("(
)(<-#)(.),%(&*)(%-)0#$I,3'-3,%(%"(9,3-(&*%"($%&'8

Solution,
,3'-3,%#&0&*&*.#9#.(0.$.-)#05$-/()0&)2,35)&7%"

Year
Future Value
PVIF @ 20%

PVIF * F.V



DCC

FF

C

F!E

DE

CE

E D
Total

C
5.77

,3'-3,%#&0&*&*()2#0,3)#'(
0M N5
):50N8V0
H"()(
0M)#'(,%%"((0.&*+(,)0
M=/('%(..#9#.(0./()$",)(#0+(,)%

)M)(<-#)(.),%(&*)(%-)0
50M%(,.+$%,%(5)&7%"),%(*&)(9(),*%()+(,)0

CM N5
):50N8VC
MCEN
:NVC

MD

,3-(&*%"($%&'8ME

ND

MDE
"()(*&)(9,3-(&*%"($%&'8,*%()$-/()0&)2,35)&7%"/()#&.#$$DE




    
  $

"()( ,)( %")(( /)&13(2$ 7#%" %"( %7&$%,5( .#9#.(0. .#$'&-0% 2&.(3 : %"( *#)$% %7&
7&-3.,//3+%&,0+%7&$%,5(2&.(3,0.%"(%"#).#$$/('#*#'%&%"(.#9#.(0..#$'&-0%
2&.(3
3 "( /),'%#',3 /)&13(2 #$ #0 .(*#0#05 %"( 3(05%" &* %"( (=%),&).#0,)+ 5)&7%"
/()#&. #0'( %"( 5)&7%" ),%( #$ (=/('%(. %& .('3#0( %& , $%,13( 3(9(3 ,*%() %"#$
/()#&.%"(9,3-(&*,0#09($%2(0%7#33#0')(,$(,$%"#$/()#&.#$2,.(3&05() %
#$ .#**#'-3% #0 /),'%#'( %& '&09()% %"($( <-,3#%,%#9( '&0$#.(),%#&0$ #0%& , $/('#*#'
%#2(/()#&.

3 "($('&0./)&13(27#%"%"#$2&.(33#($#0%"(,$$-2/%#&0%",%%"(5)&7%"),%(
#$ "#5" .-)#05 %"( #0#%#,3 /()#&. ,0. #$ %),0$*&)2(. &9()0#5"% %& , 3&7() $%,13(
),%(,%%"((0.&*%"(/()#&.H"#3(%"($($-..(0%),0$*&)2,%#&0$#05)&7%"',0
",//(0 #% #$ 2-'" 2&)( )(,3#$%#' %& ,$$-2( %",% %"( $"#*% *)&2 "#5" 5)&7%" %&
$%,13(5)&7%"",//(0$5),.-,33+&9()%#2(

3 "(*&'-$&0.#9#.(0.$#0%"#$2&.(3',03(,.%&$8(7(.($%#2,%($&*9,3-(*&)
*#)2$%",%,)(0&%/,+#05&-%7",%%"(+',0,**&).#0.#9#.(0.$ 0/,)%#'-3,)7(
7#33-0.()($%#2,%(%"(9,3-(&**#)2$%",%,''-2-3,%(',$",0./,+&-%%&&3#%%3(
#0.#9#.(0.$

a   

"( .#$'&-0%(. ',$" *3&7 &)  ,//)&,'" .($')#1($ , 2(%"&. &* 9,3-#05 , /)&6('%
'&2/,0+&),$$(%-$#05%"('&0'(/%$&*%"(%#2(9,3-(&*2&0(+ 9,3-,%#&02(%"&.
-$(.%&($%#2,%(%"(,%%),'%#9(0($$&*,0#09($%2(0%&//&)%-0#%+

33*-%-)(',$"*3&7$,)(($%#2,%(.,0..#$'&-0%(.%&5#9(%"(2,/)($(0%9,3-("()(
,)( .#**()(0% %+/($ &*  2&.(3 #( ,$" *3&7 %& (<-#%+ 2&.(3 ,$" *3&7 %& *#)2
2&.(3,.6-$%(./)($(0%9,3-(2&.(3

 
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"( *)(( ',$" *3&7 2&.(3 ($%#2,%($ %"( 9,3-( &* (<-#%+ ,$ %"( /)($(0% 9,3-( &* %"(
(=/('%(.*)((',$"*3&7%&(<-#%+&9()%#2("#$#$,2(,$-)(&*"&72-'"',$"',01(
/,#. %& %"((<-#%+ $",)("&3.()$ &* %"('&2/,0+ ,*%() ,33 (=/(0$($ )(#09($%2(0% ,0.
.(1% )(/,+2(0% "( *)(( ',$" *3&7 %& (<-#%+ #$ .(*#0(. ,$ %"( )($#.-,3 ',$" *3&7 3(*%
&9() ,*%() 2((%#05 #0%()($% ,0. /)#0'#/,3 /,+2(0% ,0. /)&9#.#05 *&) ',/#%,3
(=/(0.#%-)(%&2,#0%,#0(=#$%#05,$$(%$,0.')(,%(0(7,$$(%$*&)*-%-)(5)&7%"

   
$
3 "#$,//)&,'"#$(,$#($%%&-$(*&),$$(%$*#)2$7"&$(
W,$"*3&7$,)('-))(0%3+/&$#%#9(,0.
W,01(($%#2,%(.7#%"$&2()(3#,1#3#%+*&)*-%-)(/()#&.$,0.
W H"()( , /)&=+ *&) )#$8 %",% ',0 1( -$(. %& &1%,#0 .#$'&-0% ),%($ #$
,9,#3,13(

3 %7&)8$1($%*&)#09($%&)$7"&(#%"()
W ,9( , 3&05 %#2( "&)#>&0 ,33&7#05 %"( 2,)8(% %#2( %& '&))('% #%$
9,3-,%#&02#$%,8($,0.*&)/)#'(%&)(9()%%&;%)-(49,3-(&)
W )(',/,13(&*/)&9#.#05%"(',%,3+$%0((.(.%&2&9(/)#'(%&9,3-(,$
7&-3.1(%"(',$(#*+&-7()(,0,'%#9#$%#09($%&)&),/&%(0%#,3,'<-#)()&*
%"(7"&3(*#)2




 

  $

3 #0'(#%#$,0,%%(2/%%&($%#2,%(#0%)#0$#'9,3-(#%)(<-#)($*,)2&)(#0/-%$,0.
#0*&)2,%#&0%",0&%"()9,3-,%#&0,//)&,'"($
3 "($( #0/-%$ ,0.#0*&)2,%#&0 ,)( 0&% &03+ 0&#$+ ,0. .#**#'-3% %& ($%#2,%( 1-%
',0 1( 2,0#/-3,%(. 1+ %"( $,99+ ,0,3+$% %& /)&9#.( %"( '&0'3-$#&0 "( &) $"(
7,0%$

Example,
Excel Chemicals Company: Summarized Balance Sheet

Rs. In
Rs. In
Crore
Crore
&-)'(&**-0.

",)("&3.()$*-0.

,#.-/',/#%,3E')&)($",)($&*$
E
(,'"
($()9($-)/3-$
E
F E

&))&7(.-0.

('-)(.

0$('-)(.
!E
!E
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! 
$($&**-0.

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FE
($$B (/)('#,%#&0
DE
(%
3&'8

C 
09($%2(0%

C
-))(0% $$(%
EC
($$B-))(0%#,1#3#%#($
 D
575
(%-))(0% $$(%$

(% $$(%$
! 

Excel chemicals summarized profit and loss account and per share data













(%,3($
&$%&*5&&.$$&3.
(/)('#,%#&0
(33#05,0. .2#0#$%),%#9((=/(0$(
&%,3(=/(0$(


0%()($%


,=
 

()$",)(.,%,



&&89,3-(
,)8(%9,3-(
#5"
&7
9(),5(
A),%#&
#5"
&7
9(),5(


!!E
C
F
!
E
!
C
E
DF

C



C

F

!
F
D




 E
CE

E
E
C


C

E


F
CE

F
!


ED
E
E
D
E
C
C

CE


C

F



CC

E
D


F
FE
E
!
E

E
E

E

C

D

CE
F
F


E
D

F!E
!E

C
EC
ED
C
D
E
DC

C
$
!

D
C


D

F

%$ $,3( ",$ 5)&70 %& I .-)#05 %"( +(,) "( ='(3$ 2,0,5(2(0% 7&-3. #0')(,$(
5)&7%" ),%( %& D I 7#%"#0 C +(,)$ )(.-'(  %& FFI ,0. $(33#05  .#$%)#1-%#&0
(=/(0$( %& EI &* $,3($ ,/#%,3 =/(0.#%-)( #$ EI &* $,3($ ,= ),%( #$ CE I
(/)('#,%#&0#$XI"(5)&7%"),%(#$FI,3'-3,%(9,3-(&*<-#%+

Solution,
Particulars

2004

2005

2006

2007

F!E

 D

DDF



!E

D

DC

CEC

C

CC

C

CC

Less: Depreciation



E

EE

F

Profit Before Tax

ED

!D

F

C

Less: Tax @ 35%

EE

F!

DF

F

Profit After Tax

C

!

F

!D

Add: Depreciation



E

EE

F

Cash Flows

C

D

E

ED

Less: CAPEX

D!

!



Less: Changes in Working Capital

C

CF

F

143

61

85

111

Sales
Less: Cost of goods sold

(% of Sales)

Less : Selling & Distribution Expenses

(% of

Sales)

Net Free Cash Flow

Working Notes,
1) Calculation of Depreciation;
Year

Asset
(Rs.)

2004
2005
2006
2007

Capital
Expenditure

Total Assets

EI&*,3($

C 

!

&3-20NC

D!
F
!
E

EE

Depreciation Net Assets


(Rs.)
I

E
EE
F


!
!

2) Calculation of net change in working capital


Year
2004
2005
2006
2007

Sales
F!E
 D
DDF


Working Capital as % of
Sales
CI
CI
CI
CI

Working Capital
E E
FE
F
FD

Change in Working
Capital

C
CF
F

Calculation of Cost of Debt


.M %,=
MECE
M! EI
Calculation of Cost of Equity
(M Y5


MYFI
!
MDCI
Calculation of WACC (Weighted Average Cost of Capital);

e
d

Book Value weights Cost of Equity


Column 3 * 4
F E
F!F
DC
CFD
!E
C
! E
!F
0.1328568

WACC = 13% ),%(&*)(%-)0


H(7#33.#$'&-0%(,'"0(%',$"*3&71+CI

Calculation of Salvage Value;


,39,5(,3-(M(%,$"3&7N5
)5

MNF
CIFI
M$FD

&%,3,3-(&*%"(#)2M(%,$"3&7Y XCI

Year
Net Cash Flow
PVIF @ 13%

2005 F
DDE
2006 DE
 DC
2007 
F!C
FD,39,5(,3-(
F!C
Total Value Of the Firm

,3-(&*%"(#)2MCF
($$,3-(&* (1%M!E*)&2%"(
,3,0'("((%
,3-(&*<-#%+M 1067

-21()&*<-#%+",)($#0='(3ME')&)(

,3-(&*,'"",)(M,3-(&*<-#%+
-21()&*<-#%+",)($

MF
E
M$FD

Value of Equity Shares = 42.68

DCF

EC!DE
FFEEE
F!C
F!CC
CFC!F

     
     
The constant growth FCFE model
 

   



 


 

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%"()(<-#)(.),%(&*)(%-)0)&2%"#$2&.(39,3-(7#331(',3'-3,%(.,$*&33&7$

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Example,
"#3#/ &))#$ 0',$*&33&7#05.,%,
Particulars
Amt (Rs.)
#0!!
EE
,#.&-% 
CE
,/#%,3$/(0.#05/()$",)(
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F!
(1%),%#&
!! I

(%,*&)$%&'8

1&0.),%(
I
7,$(=/('%(.%&5)&7,+(,)
EI

Solution,
Particulars
-))(0%
(Less)
,/#%,3$/(0.#05 (/)('#,%#&0
(Multiply)  (1%),%#&
(Less)
Z7&)8#05',/#%,3
(Multiply)  (1%),%#&

Free Cash Flow to the Equity

Rs.
Rs.

EE
E

CI D
F

CI 

4.85

Cost of Equity = IN=EI


=EI
Rate of Return = EI
Value of stock = DE=E
EE
MF !

Value of Equity Share = Rs. 67.9

P
'   

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$%,13(*#)2#0%"(#0#%#,3/()#&.,0.,%,$%,13(),%(,*%()%",%)&2%"#$2&.(39,3-(7#33
1(',3'-3,%(.,$*&33&7$

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Works best for:


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$%,13(5)&7%"#%#$%"(,//)&/)#,%(2&.(3%&-$(%&9,3-(*#)2$7#%"9()+"#5"5)&7%"
),%($ '-))(0%3+ "( ,$$-2/%#&0$ ,1&-% 5)&7%" ,)( $#2#3,) %& %"( &0($ 2,.( 1+ %"(
%")(($%,5( .#9#.(0. .#$'&-0% 2&.(3 1-% %"( *&'-$ #$ &0  #0$%(,. &* .#9#.(0.$
2,8#05#%2&)($-#%(.%&9,3-(*#)2$7"&$(.#9#.(0.$,)($#50#*#',0%3+"#5"()&)3&7()
%",0%"(



 


3If firm is
,)5(,0.5)&7#05,%,),%('3&$(%&&)3($$%",05)&7%"),%(&*%"(('&0&2+&)
&0$%),#0(.1+)(5-3,%#&0*)&25)&7#05,%),%(*,$%()%",0%"(('&0&2+
,$%"('",),'%()#$%#'&*,$%,13(*#)2,9(),5()#$8)(#09($%2(0%),%($

Use a Stable Growth Model

3If firm is
$3,)5(5)&7#05,%,2&.(),%(),%(9(),335)&7%"),%(NI&)
,$,$#053(/)&.-'%1,))#()$%&(0%)+7#%",*#0#%(3#*((5,%(0%$

Use a 2-Stage Growth Model

3If firm is
$$2,33,0.5)&7#05,%,9()+"#5"),%([9(),335)&7%"),%(NI&)
,$$#50#*#',0%1,))#()$%&(0%)+#0%&%"(1-$#0($$
,$*#)2'",),'%()#$%#'$%",%,)(9()+.#**()(0%*)&2%"(0&)2

Use a 3-Stage or n-stage Model


           

"(.#$'&-0%(.',$"*3&72&.(3%",%-$($',01(9#(7(.,$,0,3%()0,%#9(%&%"(
.#9#.(0. .#$'&-0% 2&.(3 #0'( %"( %7& ,//)&,'"($ $&2(%#2($ /)&9#.( .#**()(0%
($%#2,%($&*9,3-(#%#$7&)%"(=,2#0#057"(0%"(+/)&9#.($#2#3,)($%#2,%($&*9,3-(
7"(0 %"(+ /)&9#.( .#**()(0% ($%#2,%($ &* 9,3-( ,0. 7",% %"( .#**()(0'( %(33$ -$ ,1&-%
%"(*#)2

 

"()( ,)( %7& '&0.#%#&0$ -0.() 7"#'" %"( 9,3-( *)&2 -$#05 %"(  #0 .#$'&-0%(.
',$" *3&7 9,3-,%#&0 7#33 1( %"( $,2( ,$ %"( 9,3-( &1%,#0(. *)&2 -$#05 %"( .#9#.(0.
.#$'&-0%2&.(3
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3 #)$%7"(0%"(#$5)(,%()%",0%"(.#9#.(0.,0.%"((='($$',$"(#%"()
(,)0$1(3&72,)8(%#0%()($%),%($&)#$#09($%(.#00(5,%#9(0(%/)($(0%9,3-(
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%"(.#9#.(0..#$'&-0%2&.(3


3 ('&0. %"( /,+2(0% &* .#9#.(0.$ 3($$ %",0  3&7()$ .(1%(<-#%+ ),%#&$
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3 "()( #$ , %"#). /&$$#1#3#%+ ,0. #% )(*3('%$ .#**()(0% ,$$-2/%#&0$ ,1&-%


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'&2/&0(0% &* %"( 9,3-( &* '&0%)&33#05 , *#)2  #% 2(,$-)($ %"( 9,3-( &* '&0%)&33#05
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'",05(%"(.#9#.(0./&3#'+%&)(*3('%%"-$',/%-)#05%"("#5"()9,3-(

$ *&) 7"#'" &* %"( %7& 9,3-($ #$ %"( 2&)( ,//)&/)#,%( &0( *&) -$( #0 (9,3-,%#05 %"(
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%"()(#$,$#>,13(/)&1,1#3#%+%",%,*#)2',01(%,8(0&9()&)#%$2,0,5(2(0%'",05(.
%"(2,)8(%/)#'(7#33)(*3('%%",%3#8(3#"&&.,0.%"(,//)&/)#,%(1(0'"2,)8%&-$(#$%"(
9,3-(*)&2%"(2&.(3
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,0.A&)3(5,3&)2,)8(%)($%)#'%#&0$&0%,8(&9()$%"(9,3-(*)&2%"(.#9#.(0..#$'&-0%
2&.(37#33/)&9#.(%"(,//)&/)#,%(1(0'"2,)8*&)'&2/,)#$&0

   

$$(%
,$(.

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9,3-(.,%1&&82,)8(%,0.)(/3,'(2(0%&)3#<-#.,%#&09,3-( &)(&*%(0%",00&%%"(+
,)( ,0. $"&-3. 1( 9,3-(. ,% 1&&8 9,3-( %",% #$ &)#5#0,3 ,'<-#$#%#&0 '&$% 2#0-$
,''-2-3,%(..(/)('#,%#&0,$,$$(%$,)(0&)2,33+,'<-#)(.7#%"%"(#0%(0%%&1(-$(.#0
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',/#%,3 /,+,13( ,)( .(.-'%(. *)&2 %&%,3 ,$$(%$ (='3-.#05 *#'%#%#&-$ ,$$(%$ "(
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(% $$(%$M&%,3 $$(%$:&%,3=%()0,33#,1#3#%#($

"( 9,3-( &* 0(% ,$$(%$ #$ ,3$& 80&70 ,$ 0(% 7&)%" &) (<-#%+A &).#0,)+ $",)("&3.()$
*-0.$ $$-2#05%"(*#5-)(&*0(%,$$(%$%&1(/&$#%#9(#%#2/3#($%"(9,3-(,9,#3,13(%&
(<-#%+$",)("&3.()$,*%()%"(/,+2(0%&*,33(=%()0,33#,1#3#%#($(%,$$(%$/()$",)(',0
1( &1%,#0(. 1+ .#9#.#05 0(% ,$$(%$ 1+ %"( 0-21() &* (<-#%+ $",)($ #$$-(. ,0.
&-%$%,0.#05"-$

(% $$(%$/()",)(M(% $$(%$


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"(9,3-(&*0(%,$$(%$#$'&0%#05(0%-/&0%"(2(,$-)(&*9,3-(,.&/%(.*&)%"(/-)/&$(
&*9,3-,%#&0&*,$$(%$,0.3#,1#3#%#($ 0%"(',$(&*1&&89,3-(,$$(%$,0.3#,1#3#%#($,)(
%,8(0 ,% %"(#) 1,3,0'( $"((% 9,3-($ 0 %"( 2,)8(% 9,3-( 2(,$-)( ,$$(%$ $"&70 #0 %"(
1,3,0'($"((%,)()(9,3-(.,%%"('-))(0%2,)8(%/)#'($
"(0(%,$$(%$9,3-,%#&01,$(.&01&&89,3-(#$#0%-0(7#%"%"(5&#05'&0'()0/)#0'#/3(
&*,''&-0%#05 0'&0%),$%3#<-#.,%#&09,3-(2(,$-)(#$5-#.(.1+%"()(,3#>,13(9,3-(
,9,#3,13(&0%"(7#0.#05-/A3#<-#.,%#&0&*,'&)/&),%(*#)2
#<-#.,%#&0 9,3-( #$ %"( *#0,3 0(% ,$$(% 9,3-( #* ,0+ /() $",)( ,9,#3,13( %& %"( (<-#%+
$",)("&3.()"(9,3-(#$5#9(0,$/()(<-,%#&0

(%
$$(%M#<-#.,%#&0,3-(&*,$$(%$:#<-#.,%#&0=/(0$($:&%,3=%()0,3#,1#3#%#($
()",)(-21()&*<-#%+",)( $$-(.,0.-%$%,0.#05

Example:

&33&7#05#$%"(1,3,0'($"((%&*G%.,$&0 ,)'"CD
$ 0,8"
Liabilities
Share Capital
40,000 11% Preference Share

Amt (Rs.)



of Rs. 100 each, Fully paid


1,20,000 Equity Shares of Rs

Assets

Amt (Rs.) Amt (Rs.)

#=(. $$(%$

E

($$B (/)('#,%#&0

C



%&'8$



100 each, Fully paid



Profit and Loss Account

C

(1%&)$

E

10 % Debentures



,$",0.
,08



Trade Creditors

)(3#2#0,)+=/

Provision for Income Tax

282

282

Additional Information:


*#)2&*)&*($$#&0,3,3-()$",$/)&9#.(.%"(*&33&7#052,)8(%($%#2,%($&*#%$
9,)#&-$,$$(%$#=(. $$(%$$C3,8"%&'8$$3,8" (1%&)$$E3,8"
33&%"(),$$(%$,)(%,8(0,%%"(#)1,3,0'($"((%9,3-($

 "(&2/,0+#$+(%%&.('3,)(,0./,+.#9#.(0.&0)(*()(0'(",)($
C "(,3-(,3$&($%#2,%(%"('-))(0%$,3(/)&'((.$&*%"(*#)2?$,$$(%$#0%"((9(0%
&*#%$3#<-#.,%#&0*#=(.,$$(%$$E3,8"$%&'8$!3,8".(1%&)$$3,8"

($#.($%"(*#)2#$%&#0'-)$E3,8",$3#<-#.,%#&0'&$%$

&- ,)( )(<-#)(. %& '&2/-%( %"( 0(% ,$$(% 9,3-( /() $",)( ,$ /() $",)( 2,)8(% 9,3-(
,0.3#<-#.,%#&09,3-(1,$($

Solution: Determination of Net Value Per Share

1) Book Value Basis


Particulars

Amt (Rs.)

Amt(Rs.)

Fixed Assets (net)



Current Assets:

Stocks



Debtors

E

Cash and Bank



F

Total Assets

Less: External Liabilities

D

10% Debentures



Trade Creditors

Provision for Income Tax

11% Preference Share Capital



Dividend on Preference Share



(0.11 * Rs 40 Lakh)

C

Net Assets Available for Equity Shareholder

CFF

Divided by the number of Equity Shares (in lakh)



Net Assets Value Per share (Rs)

113.83

2) Market Value Basis

Particulars

Amt (Rs.)

Amt(Rs.)

Fixed Assets (net)

C

Current Assets:

Stocks



Debtors

E

Cash and Bank



E

Total Assets

D

Less: External Liabilities

(as per details given above)

C

Net Assets Available for Equity Shareholder

CF

Divided by the number of Equity Shares (in lakh)



Net Assets Value Per share (Rs)

119.67

3) Liquidation Value Basis


Particulars

Amt (Rs.)

Amt(Rs.)

Fixed Assets (net)

E

Current Assets:

Stocks

!

Debtors



Cash and Bank





Total Assets

E

Less: External Liabilities

(as per details given above)

C

Net Assets Available for Equity Shareholder

DFF

Divided by the number of Equity Shares (in lakh)



Net Assets Value Per share (Rs)



"(

72.17

    

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