Programme: MBA Semester-III (CBCS- OUTCOME BASED)

Elective: Financial Management FM1: Investment Analysis & Portfolio Management

Module-2 Equity Valuation

Net Assets Basis Method.

1.) Calculate the value of equity shares by Net Assets Basis Method. As on
31st Dec. 2019 based on the Balance Sheet of M/s Apollo Limited as on
that date as indicated hereunder. Balance sheet as on 31st Dec. 2019
Particulars Rs. Rs.
Equity & Liabilities
Shareholders Fund
Authorised Share Capital:
10,000 6% Cumulative Preference Share of Rs. 10 Each. 1,00,000
10,000 Equity Shares of Rs. 10 Each 1,00,000
2,00,000
Issued & Fully Paid up Capital
7,000 6% Cumulative Preference Share of Rs. 10 Each 70,000
10,000 Equity Shares of Rs 10 Each 1,00,000
Reserve & Surplus:
Capital Reserve: 50,000
Share Premium 10,000
Profit & Loss Account 1,27,500 1,87,500

5% Debentures 30,000
Sundry Creditors 55,000
Provident Fund 21,500
4,64,000
Fixed Assets 2,50,000
Goodwill 10,000
Investments 52,000
Stock In Trade 45000
Debtors 45,000
Cash At Bank 45,000
Cash In Hand 500
Preliminary Expenses 12,000
Deferred Revenue Expenses 4,500
4,64,000

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 Programme: MBA Semester-III (CBCS- OUTCOME BASED)
Elective: Financial Management FM1: Investment Analysis & Portfolio Management
Module-2 Equity Valuation

Additional Information:
a) Preference Dividends are in arrears for the last three years.
b) Outstanding Expenses amounted to Rs. 2,500
2.) The following is the summarised balance sheet of X Company s at 31st
March. 2020
Equity And Liabilities Rs.
Share Capital
10,000 Preference Share of Rs. 100 each fully paid 10,00,000
2,00,000 Equity Shares of Rs. 10 each fully paid up 20,00,000
General Reserves 15,00,000
Profit & Loss Account 12,00,000
6% Debentures 8,00,000
Creditors 2,75,000
Liabilities For Expenses 1,25,000
69,00,000
Fixed Assets 38,00,000
Investments 10,25,000
Stock In Trade 5,72,000
Debtors 12,78,000
Cash And Bank Balances 2,25,000
69,00,000
For the purpose of valuation of share:
a) Fixed assets are to be depreciated by 10% and
b) Investment are revalued at Rs. 10,80,000.
c) Debtors will realised Rs. 12,14,100.
d) Interest on debenture is accrued due for 9 months and
e) Preference dividend for the year ending 31 march 2020 is also due;
neither of Interest on debenture & Preference dividend has been
provided in the balance sheet.

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 Programme: MBA Semester-III (CBCS- OUTCOME BASED)
Elective: Financial Management FM1: Investment Analysis & Portfolio Management
Module-2 Equity Valuation

3) Calculate the value of equity share by net assets method. The

summarised Balance Sheet of M/s PPK Ltd., as on 31st March 2020 as
follows:
Equity And Liabilities Rs.
Share Capital
30,000 Equity Share of Rs. 10 each fully paid 3,00,000
10,000 Equity Shares of Rs. 10 each Rs.8 paid up 80,000
General Reserves 1,80,000
11% Debentures 1,00,000
Current Liabilities 90,000
7,50,000
Goodwill 70,000
Other Fixed Assets 4,50,000
Current Assets 2,20,000
Preliminary Expenses 10,000
7,50,000
The goodwill is independently valued at Rs. 50,000 and other fixed assets at
Rs. 4,20,000.There was contingent liability of Rs.20,000 which has become
payable. Determine the value of both the shares under net assets method.
Yield Method
4) The following is the balance sheet of a company as on 31st Dec. 2019.
Equity And Liabilities
Equity Share Capital of Rs. 100 each 12,00,000
Reserve and surplus 2,50,000
Creditors 5,60,000
Provision for Tax 1,43,000
21,53,000
Fixed Assets 14,60,000
Investment @ 5% 1,20,000
Current Assets 5,40,000
Preliminary Expenses 33,000
21,53,000

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 Programme: MBA Semester-III (CBCS- OUTCOME BASED)
Elective: Financial Management FM1: Investment Analysis & Portfolio Management
Module-2 Equity Valuation

The provision for taxation for the current year is 55% of net profits. Returns
on capital employed m in this industry is 10%. Ascertain the yield value of
share.
5) From the Following information calculate the Yield Value of per Equity
Share
2,000, 9% Preference Share of Rs. 100 Each 2,00,000
50,000 Equity Share of Rs. 10 each Rs. 8 Per Share Paid up 4,00,000
Expected Profit per year before Tax 2,18,000
Rate of Tax 50%
Transfer to General Reserve every year 20% of the Profit
Normal rate of earning 15%
6) The Balance Sheet of Diamond as on 31 March 2020 is given below
Equity And Liabilities
Equity Share Capital of Rs. 100 each 2,00,000
General Reserve 40,000
Profit & Loss Account (Surplus) 32,000
Creditors 1,28,000
Provision for Tax 60,000
4,60,000
Land & Building 1,10,000
Plant & Machinery 1,30,000
Plant & Trade Marks 20,000
Stock 48,000
Debtors 88,000
Bank Balance 52,000
Preliminary Expenses 12,000
4,60,000
The expert valuer valued the land and building at Rs. 2,40,000, goodwill at
Rs. 1,60,000 and plant & machinery are Rs. 1,20,000. Out of the total
debtors, it is found that debtors for Rs. 8,000 are bad. The profits of the
company have been as follows:
Year Profit in Rs.
2017-18 92,000
2018-19 88,000
2019-20 96,000

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 Programme: MBA Semester-III (CBCS- OUTCOME BASED)
Elective: Financial Management FM1: Investment Analysis & Portfolio Management
Module-2 Equity Valuation

The company follows the practice of transferring 25% of profit to general

reserve. Similar type of companies earn at 10% of the value of their shares.
Ascertain the value of share of the company as per i) Intrinsic value method
ii) Yield Value Method. Iii) Fair Value Method.
Dividend Discount Model - One Year Holding Period
7) Prestige Company’s equity share is expected to give a dividend of Rs. 2.00
and fetch a price of Rs. 18.00 a year . What price would it sell for now if
investors' required rate of return is 12%?
8) An investor expects to get Rs 3.50 as dividend from a share next year and
hopes to sell of off the share at Rs 45 after holding it for one year and if
his required rate of return is 25% calculate intrinsic value of this share
9) Mr. Kordimal is planning to buy an equity share, hold it for one year and
then sale it. The expected dividend at the end of the one year is Rs. 7.00
and the expected sale proceeds Rs. 200 after one year. Determine the
value of share to the investor assuming the discount rate of 15%.
10)Mr. Kordpati is planning to buy an equity share, hold it for one year and
then sell it. The expected dividend at the end of the one year is Rs. 8.00
and the expected sale proceeds Rs. 160 after one year. Determine the
value of share to the investor assuming the discount rate of 12%.
Dividend Discount Model - Two Year Holding Period
11)Mr. Lakapti is planning to buy an equity share, hold it for two years and
then sell it. The expected dividend at the end of the one year is Rs. 7.00
and Rs. 7.50 at the end of year two. The expected Selling price of the
share at the end of year two is Rs. 220. Calculate the value of share
today taking 15% discount rate.
12)Mr. Karodimal is planning to buy an equity share, hold it for two years
and then sell it. The expected dividend at the end of the one year is Rs.
8.00 and Rs. 9.00 at the end of year two. The expected Selling price of the
share at the end of year two is Rs. 180. Calculate the value of share
today taking 10% discount rate.

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 Programme: MBA Semester-III (CBCS- OUTCOME BASED)
Elective: Financial Management FM1: Investment Analysis & Portfolio Management
Module-2 Equity Valuation

Dividend Discount Model - n Year Holding Period Valuation Model

13)Mr. Fukatchand except a dividend of Rs. 5 per share for each year of 10
years and selling price of Rs. 80 at the end of the 10 years. Calculate the
present value of share if the required rate of return is 12%. (PVAF @12%
For 10 Years= 5.650 & PVF @12 For 10 year =0.322)
14)Mr. Fakrimal except a dividend of Rs. 8 per share for each year of 5 years
and selling price of Rs. 120 at the end of the 5 years. Calculate the
present value of share if the required rate of return is 10%. (PVAF @10%
For 5 Years= 3.7909 & PVF @ 10% For 5 year =0.62092)
Dividend Valuation Model –Zero Growth Model or No Growth Model
15)A Blue Star Company is presently paying a dividend of Rs. 6 per share
and is expected not to deviate from this is future. Calculate the value of
share if the required rate of return is 15%.
16)A Green Pearl Company is presently paying a dividend of Rs. 9 per share
and is expected not to deviate from this is future. Calculate the value of
share if the required rate of return is 15%.
17)A Blue Diamond Company is presently paying a dividend of Rs. 4 per
share and is expected not to deviate from this is future. Calculate the
value of share if the required rate of return is 20%.
18)A firm Pay a dividend of Rs. 20 on the equity share of face value of Rs.
100 each. Find out the value of the equity share given that the dividend
rate is expected to remain same and the required rate of return of the
investor is 15%
Dividend Valuation Model –Constant Growth Model or Gordon Model
19) A Blue Diamond Company is Expected to pay a dividend of Rs. 6 per
share next year. The dividends are expected to grow perpetually at a rate
of 9%.What is the value of its share if the required rate of return is 15%.
20)A Blue-Moon Company is Expected to pay a dividend of Rs. 8 per share
next year. The dividends are expected to grow perpetually at a rate of
10%.What is the value of its share if the required rate of return is 15%.
21)A Lemon Company is Expected to pay a dividend of Rs. 2 per share. The
dividends are expected to grow perpetually at a rate of 10%.What is the
value of its share if the required rate of return is 30%.

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 Programme: MBA Semester-III (CBCS- OUTCOME BASED)
Elective: Financial Management FM1: Investment Analysis & Portfolio Management
Module-2 Equity Valuation

22)A Blue-bell company’s current share price is Rs. 200.The company is

Expected to pay a dividend of Rs. 5 per share with an annual growth
rate of 10%.If investors required rate of return is 12% Calculate the
value of share
23)The company ABC’s next year dividend per share is expected to be Rs.
3.50 The dividend in subsequent years is expected to grow at rate of 10%
per year. If the required rate of return is 15% per year. What should be
its price? The prevailing market price is Rs. 75.Mr. Kapoor wants to buy
the share kindly advice Mr. Kapoor? (old Book let)
24)Mr. A Hazare investor requires12% rate of return on equity share of a
company. What would be the market price of the shares if the previous
years dividend was Rs. 2 and the investors expects dividend of to grow ta
constant rate of 11%
25)A Red-Chili Company’s current price of share is Rs. 75 and dividend per
share is Rs. 5 calculate the dividend growth rate, if its capitalization rate
is 12%. current dividend is Rs. 200
26)Seth Karodimal has invested in XYZ Chemicals Ltd., The Capitalization
rate of the company is 15% and the current dividend is Rs. 200 per
share. A) Calculate the value of the company’s equity share if the
company is slowly sinking with the annual decline rate of 5% in the
dividend. B) what would be the value of the equity share of XYZ Ltd
chemicals if the company shows no growth but is able to maintain its
dividend.
27) BPT Paid Rs. 2.75 in dividends on its equity share last year. Dividends
are expected to grow at 12% annual rate for an indefinite number of
years. (a) If BPT’s current market price is Rs. 37.50 what is the stocks
expected rate of return? (b) if your required rate of return is 14% what is
the value of the stock for you?
28)The market price for super Iron’s equity is Rs. 65 per share. The price at
the end of one year is expected to be Rs. 90 and dividends for the next
year should be Rs. 2.90 what is the expected rate of return?
29) Ahujas Textile equity share currently sells for Rs. 23 per share. The
company finance manager anticipates a constant growth rate of 10.5%
and an end of the year dividend of Rs. 2.50.(a) what is the expected rate

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 Programme: MBA Semester-III (CBCS- OUTCOME BASED)
Elective: Financial Management FM1: Investment Analysis & Portfolio Management
Module-2 Equity Valuation

of return? (b) if the investor requires 17% return should he purchase the
stock?
30)Raj Company’s equity share currently sells for Rs. 22.50 per share. The
finance manager of RAJ anticipates constant growth rate of 12% and an
end of year dividend of Rs. 2.50.(a) what is your expected rate or return if
you buy the stock for Rs. 25? (b) if you require 18% return, should you
purchase the stock?
Dividend Valuation Model –Super Normal Growth Model
31) A company is currently paying a dividend fi Rs. 20 per share. The
Dividend is expected to grow at 15% annual for three years, then at 10%
rate for the next three years, after which is expected to gorw at a 5% rate
forever.(a)what is the present value of the share if capitalisation rate is
9%. (PVF @ 9% for 6 years= 0.917; 0.842; 0.772; 0.708; 0.650; 0.596.)
32)A large sized chemical company has been expected to grow at 14% per
year for next four years and then to grow indefinitely at the rate of 5%.
The required rate of return of the equity share is 12%.Assume that the
company paid a dividend of Rs. 2 per share last year(Do=2).Determine
the market price of the shares today. (PVF @ 12% for 4 years= 0.893;
0.797; 0.712; 0.636;)
33)A chemical company has been growing at a rate of 18% per year in recent
years. This abnormal growth is expected to continue for another 4 years;
then it is likely to grow at the rate (gn) of 6%.The required rate of return
on the shares of the investment community is 12%, and the dividend
paid per share last year was Rs. 3 (Do= Rs.3).At what price would you as
an investor be ready to buy the shares of the is company now (t=0),and at
the end of the year 1,2,3,4 respectively? Will there be any extra
advantages by buying share at t=o, on in any of the subsequent four
years, assuming all other things remain unchanged? (PVF @ 12% for 4
years= 0.893; 0.797; 0.712; 0.636;)
34)ABC Ltd. Has just paid a dividend of Rs. 2per share .Its earnings and
dividend shown a growth rate of 18% and the same is expected to
continue for another 4 years after which the growth will fall to 12 % fpr
the next 4 years, Thereafter the growth rate is expected to be 6% forever.
Find out the market price of the share if the required rate of return of the

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 Programme: MBA Semester-III (CBCS- OUTCOME BASED)
Elective: Financial Management FM1: Investment Analysis & Portfolio Management
Module-2 Equity Valuation

investor for this risk class is 9%. (PVF @ 15% for 8 years= 0.870; 0.756;
0.658; 0.572; 0.497; 0.432; 0.376; 0.327)
35)An investor has invested ha is saving in a company from whom dividends
are expected to grow @20% for 15 years and thereafter @ 7% forever.
Find out the value of the equity share given that the current dividend per
share is Re.1 and the required rate of return of the investor is 9%. (PVF @
9% for 6 years= 0.917; 0.842; 0.772; 0.708; 0.650; 0.596; 0.547; 0.502;
0.460; 0.442; 0.388; 0.356; 0.326; 0.299; 0.275)
36) Z ltd., is for seeing a growth rate of 12% per annum in the next two
years. The growth rate is likely to fall to 10% for the third year and fourth
year. After that the growth rate is expected to stabilised at 8% per
annum. If the last dividend paid was Rs. 1.50 per share and the o
investor’s required rate of return is 10% find out the intrinsic value per
share of Z ltd. As of date. You may use the following table.
Years 0 1 2 3 4 5
Discounting Factor @16% 1 0.86 0.74 0.64 0.55 0.48

37)Van products currently pays a dividend of Rs. 2.00 per share and this
dividend is expected to grow at a 15% annual rate for 3 years, then at a
12% rate for the next three years, after is is expected to grow at a 5% rate
forever .a) what value would you place on the equity if 9% rate of return
were required? b) would you calculation change if you expect to hold the
equity only for 3 years?
Relatives Valuation Techniques: Price Earning Ratio ; Price to Book Value
Ratio Price to Sales Ratio
38)Calculate the value of equity share from the following:
Particulars Rs.
Equity share Capital of Rs 20 each 50,00,000
Reserves and surplus 5,00,000
15% Secured Loans 25,00,000
12.5% Unsecured loans 10,00,000
Fixed Assets 30,00,000
Investment 5,00,000

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 Programme: MBA Semester-III (CBCS- OUTCOME BASED)
Elective: Financial Management FM1: Investment Analysis & Portfolio Management
Module-2 Equity Valuation

Operating Profits 25,00,000

Tax Rate 30%
Price/Earning Ratio (P/E Ratio) 12.5
39)The following is the capital structure of A ltd. As on 31st March 2011
Particulars Rs.
Equity share Capital of Rs 20 each 10,00,000
Share premium 15,00,000
Reserves and surplus 5,00,000
Net worth 30,00,000
On 1 April 2010 the company made a bonus issue of 2:5.Mr.X purchased
100 share of A Ltd 0n 1 April 2006 at the market priceof Rs. 30. He sold
these share on 31 March 2012 at the market price of Rs. 50 per share (cum-
dividend). He has to pay a tax @20% on his dividend income and @ 155 on
capital gains.
If the company pays regular dividend 10% find out whether investor X was
able to earn his required rate of return of 10% on his investments. (Present
value factors 2 10% for 1-6 years are 0.91, 0.83, 0.75, 0.68, 0.62, and 0.56)
40)XYZ Ltd. Recently paid dividend of Rs. 2.00 per share and it is a fairly
risky company with a cost of equity of 25%.AA summary of dividend and
earnings per share is given below:
Year Dividends Earnings
2011 2.00 4.50
2010 1.80 3.50
2009 1.70 4.00
2008 1.40 3.00
2007 1.30 2.50
Any new investment by XYZ Ltd., is expected to yield a return comparable
to the cost of equity. Calculate the price of share based on earnings.
41)A share of the face value of Rs. 100 has current market price of Rs.
480.Annual expected dividend of 30%.During the fifth year the
shareholder is expecting a bonus in the ration of 1:5 Dividend rate is
expected to be maintained on the expanded capital base. The
shareholders intends to retain the share till the end of the eight year. At

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 Programme: MBA Semester-III (CBCS- OUTCOME BASED)
Elective: Financial Management FM1: Investment Analysis & Portfolio Management
Module-2 Equity Valuation

that time the value of share is expected to be Rs. 1000.Incidential

expenses at the time of purchase and sale are estimated at 5 % om the
market price .There is no tax on dividend income and capital gains. The
shareholders expects a minimum return of 15% per annum. Should he
buy the share? What is the maximum price he can pay for the share?
42) Firm A, B, & C are similar. Firm A is the most progressive and trade at
18/1 P/E multiple. Firm B is less progressive, is not publicly trade, and
has an EPS of Rs. 1.20. Firm C is least progressive and trades at a 15/1
P/E Ratio. What is intrinsic value of Firm B?
43)Company R, S & T are similar. Company R is privately held, and has a
book value of Rs. 40 per share. Company S has a market price of Rs. 15
and a book value of Rs. 12. Company T has a market value of Rs. 82 and
book value of Rs. 62.What is the possible value for Company R?
44)A firm’s current EPS is Rs. 6, its dividend pay out ratio is 40%, and its
growth rate of EPS is 10%.The normal P/E multiple is 15/1.What is the
stock value at the capitalisation of earning method? What is its value in 3
years using the same method?

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