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212 Corporate Finance BRILLIANT’S

Year Average Net Worth (Excluding Investments) (`) Adjusted Taxed Profits (`)
df© EdaoO ZoQ>dW© ({Zdoe N>mo‹S>H$a) (`) ES>OoñQ> Q>¡³ñQ> àm°{’$Q²>g (`)

2013 9,30,000 95,000
2014 10,75,000 1,05,000
2015 10,95,000 1,25,000
As at valuation date, the company has investment of the market value of ` 1,40,000 the yield
in respect of which has been excluded in arriving at adjust taxed profits figures.
The company sets apart 25% of taxed profits as rehabilitation and replacement reserve on
the valuation date networth (excluding investment) amounts to ` 11,25,000. The expected rate of
return in market is 9%. The company has consistently maintained dividend levels of 8% to 10% in
the past and is known for its consistency.
Ascertain the value of each equity share on the basis of productivity, applying suitable
weighted averages.
d¡ë¶yEeZ H$s {XZm§H$ na H§$nZr Zo < 1,40,000 Ho$ ~mOma ‘yë¶ H$m {Zdoe {H$¶m h¡ {OgHo$ g§~§Y ‘| ¶rëS> H$mo
Q>¡³ñS> àm°{’$Q²>g {’$Jg© Ho$ g‘m¶moOZ na nhþ§MZo ‘| N>mo‹S> {X¶m J¶m h¡&
H§$nZr [aho{~{bQ>oeZ VWm [aßbog‘|Q> [aOd© Ho$ ê$n ‘| Q>¡³ñS> àm°{’$Q²>g H$m AbJ go 25% {ZYm©[aV {H$¶m h¡&
d¡ë¶yEeZ {XZm§H$ na ZoQ>dW© ({Zdoe H$mo N>mo‹S>H$a) am{e < 11,25,000 h¡& ~mOma ‘| [aQ>Z© H$s Ano[jV aoQ> 9% h¡&
H§$nZr Zo {nN>bo g‘¶ ‘| {Za§Va 8% go 10% H$m {S>{dS>|S> ñVa ~Zm¶o aIm h¡ VWm BgH$s {Za§VaVm Ho$ {bE OmZm OmVm
h¡& CËnmXH$Vm Ho$ AmYma na Cn¶w³V doQ>oS> EdaoOog à¶wº$ H$aHo$ à˶oH$ B{³dQ>r eo¶a H$m ‘yë¶ kmV H$s{OE&
Solution:
The company has consistently maintained dividend levels of 8% to 10% in the last three
years and is known for its consistency since the value of each share is to be calculated on the basis
of productivity, it involves determining the earning capacity. The past results show a clearly
increasing trend and, therefore, profits are to be weighted 1 : 2 : 3 – the greatest weight being given
in the last year.
(a) Calculation of Rate of Earnings
Year Average Adjusted Rate of Earnings Weights Weighted
Net worth Taxed Rate of
(`) Profits (`) (`) Earnings

95,000
2013 9,30,000 95,000  100 = 10.215% 1 10.215
9,30,000

1,05,000
2014 10,75,000 1,05,000  100 = 9.767% 2 19.534
10,75,000
1,25,000
2015 10,95,000 1,25,000  100 = 11.416% 3 34.248
10,95,000
6 63.997