Page 233 - Corporate Finance PDF Final new link

BRILLIANT’S Long Term Financing and Valuation of Goodwill & Shares 233

Solution: 1. Calculation of Average Profits

Particulars `
1st year 40,000
2nd year 50,000
3rd year 30,000
4th year 70,000
5th year 80,000
Total Profit 2,70,000

` 2,70,000
Average Profits = = ` 54,000
5
2. Calculation of Super-Profits

Particulars `

Average Profits NPP 54,000
Less: Normal return on capital employed (10% of ` 4,00,000) 40,000
Super Profits 14,000

Goodwill = Super Profit × Value of an annuity
Goodwill = ` 14,000 × 3.78 = ` 52,920 
REVIEW QUESTIONS

Q.1. Why is long-term finance required?
bm°ÝJ Q>‘© ’$m¶Z|g ³¶m| Amdí¶H$ h¡? [See Q. 20]
Q.2. Explain the various long-term sources of finance.
’$mBZ|g Ho$ {d{^ÝZ bm±J-Q>‘© ñÌmoVm| H$mo g‘PmB¶o& [See Q. 21]
Q.3. Write a short note on: ADRs and GDRs / g§{já {Q>ßnUr {b{IE… ADRs VWm GDRs [See Q.22]
Q.4. Explain the need for valuation of shares of a company.
EH$ H§$nZr Ho$ eo¶g© Ho$ ‘yë¶m§H$Z Ho$ {bE Amdí¶H$Vm H$m dU©Z H$s{OE& [See Q.23]
Q.5. Explain the types of Goodwill. / JwS>{db Ho$ àH$mam| H$m dU©Z H$s{OE& [See Q.24]

PRACTICAL QUESTIONS
3.1.1. From the following information calculate the value of goodwill:
(a) Average capital employed ` 12,00,000.
(b) Company declares 15% dividend on the shares of ` 20 each fully paid, which is
quoted in the market at ` 25.
(c) Net trading profit of the firm (after tax) for the past 3 years: ` 2,15,200; ` 1,81,400;
` 2,25,000.