FAIR VALUE OF AN EQUITY SHARE

Hi...

Can u tell me whatz the expected rate of return in the Q??

I mean, if its there, do provide it... Coz, as per my calculation, answer is 9.15... Though, if u give the expected rate of return too, it can change the answer

Hiii this is the full question and there is no figure missing from it. while calculating ur answer what treatment u have followed for fictitious assets and liability to outsiders??????

as i have got a solution of this in which liability to outsiders is included in the total assets and then from the total assets this same figure of liability to outsiders and value of fictitious assets is deducted to arrive at Net assets...

Hi simranjeet...

For calculating FV of shares, u need to consider net assets after deducting claims of preference shares and outside liabilities...

Wait have to elaborate

Originally posted by : D н ! я σ ĵ
	Hi simranjeet...   For calculating FV of shares, u need to consider net assets after deducting claims of preference shares and outside liabilities...   Wait have to elaborate

 OK

Now,..

In ur question, according to me.. The net assets should be calculated as under :

Equity Share Capital = 5,50,00,000

Reserve                       =    45,00,000

Avg. Normal Profit      =    85,05,000

                                          -------------------

Total of above                  6,80,05,000

LESS:

Fictitious Assets        =      (41,00,000)

Outsiders Liability     =      (75,00,000)

Prefence Shares       =      (60,50,000)

(incl. pref. dividnd)

                                         -----------------------------

Net Assets                          5,03,55,000

Divide the amount

by total no. of shares           55,00,000

Hence FV/share                    Rs. 9.15

Now, the above mentioned is NET ASSETS METHOD...

There is another method known as Yield method., which considers yield, i.e income...

There expected return and normal rate of return are compared and accordingly FV is derived...

Originally posted by : D н ! я σ ĵ
	Now, the above mentioned is NET ASSETS METHOD...   There is another method known as Yield method., which considers yield, i.e income...   There expected return and normal rate of return are compared and accordingly FV is derived...

Yes u r right. but the value u had comouted is not fair value actually its value of asset by Net assets   method and fair value is actually = value of share by net assets method + value by yield method / 2.

but i am now satisfied now as regards net assets method rest i will take care off...

And i will like to thank you so much for devoting ur time in resolving my doubts and queries.

Hi Simarjeet,

Sry for being late -

10.07+4.55 = 14.63

when devide by 2 = 7.31

WN-1

Thanks for such a wonderful answer with workings AMIR.