Valuation of Business Solution

1

VALUATION OF BUSINESS

Q1 Valuation of business

Net assets method – Mkt. value of assets – Mkt value of liabilities

STATEMENT OF NET ASSETS

Land and building 96

Plant and Machinery 100

Investments 10

Stock 20

Debtors 15

Cash and bank 5

Creditors (30)

Net Assets 216

No. of shares 10

NAV per share 21.6

Profit earning capacity or earning capitalization method – capitalized future

maintainable profits

Statement of Future Maintainable profits

Current years operating profit 64

- extraordinary income (4)

- Income from investments likely to recur (1)

- Additional investment expenses (5)

-Additional depreciation (6)

Future maintainable profit before tax 48

Future maintainable profit after tax 33.6

Value on the basis of operating assets 𝐹𝑢𝑡𝑢𝑟𝑒 𝑚𝑎𝑖𝑛𝑡𝑎𝑖𝑛𝑎𝑏𝑙𝑒 𝑝𝑟𝑜𝑓𝑖𝑡𝑠

𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑠𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒

= 33.6

0.15

= 224

Total value of shares = value as per operating assets + non operating assets

224 + 10 (investments)

= 234

Value per share as per earning capitalization method = 234

10 = 23.4

Value of share on the basis of fair price method = 23.4 + 21.6

2 = 22.5

2

Q2 Current value of business is capitalised value of all future maintainable profits

Statement of FMP

PAT 65

PBT 100

Extrordinary income (10)

Extraordinary exp 3

Income of new project 27

FMP before tax 120

Tax 35 % 42

FMP after tax 78

Value of business 78

0.15 = 520

b. FMP 78

Pref dividend (11)

Profir for equity 67 lac

No. of shares 40 lac

EPS 67

40 = 1.675

MP = EPS X PE

= 1.675 x 8

= 13.4

Q3 Range of valuation of company refers to Maximum and minimum value of business

Minimum value of business means premerger value of business i.e 1.5 cr x 400

600 cr

Maximum value of business is present value all future cash flows

1 250 0.893 223.25

2 300 0.797 239.1

3 400 0.712 284.84

747.15

Q4 Par value per share = ₹ 40 / sh

Equity share cap = ₹ 1300 crore

Number of shares = 1300 / 40 = 32.5 crore shares

PAT = 290 crore

PAT per share = 290 / 32.5 = 8.92 / share

Value per share is PV of all future FCFE

FCFE = PAT – ( 1 - 𝑑

𝑑+𝐸 )( CE – depn + ch in WC)

= 8.92 – (1 – 0.27) (47 -39 + 3.45)

= 0.5615

3

Ke = RF + βE (RM - RF)

= 8.7 + 0.1(10.3 – 8.7)

= 8.86 %

Value of share = 𝐹𝐶𝐹𝐸1

𝑘𝑒 − 𝑔

= 0.5615 (1.08)

0.0886 − 0.08 = ₹ 70.51 / sh

Q5 Balancesheet for 2008

8% debentures 125

10% Bonds 50 assets 600

Equity shares 100

Reserves & surplus 300

Short term loan (B/f) 25

a. Asset turnover ratio 1.1 (sales / assets)

Assets 600

Sales 600 x 1.1 = 660

Operating margin 10% of 660 = 66

Income statement

EBIT 66

PAT 39.60

Interest 8% of 200 16

Profit for equity share holders 23.60

b. G = b.r

Retention ratio = b = ( 1 – d/p ratio)

= ( 1 – 0.1667)

= 0.8333

R = Roe = 𝑃𝑟𝑜𝑓𝑖𝑡 𝑓𝑜𝑟 𝑒𝑞𝑢𝑖𝑡𝑦

𝐸𝑞𝑢𝑖𝑡𝑦+ 𝑅𝑒𝑠 & 𝑠𝑢𝑟𝑝𝑙𝑢𝑠

= 23.60

100+300

= 5.9%

G = 0.8333 x 5.9

= 4.91%

4

c. P0 = 𝑑1

𝑘𝑒− 𝑔

Profit for equity = 23.6 lac

No. of shares = 10 lac

Profit per share = 2.36

Div per share = 2.36 x 0.1667

= 0.393

= 0.393 (1.049)

0.15 −0.049 = 4.09

d. Fair price of share is Rs 4.09

Current market price = ₹ 14

Since current market price is more than fair price, share is overpriced.

So investment should not be made in such shares.

Q6 Statement of free cash flows

1 2 3 4 5

EBIT 360 432 518 622 684

EAT 252 302 363 435 479

+depn 240 288 346 415 -

- CE 336 403 484 581 -

- Ch in WC 100 120 144 173 104

56 67 81 96 375

Overall cost of capital for 1st 4 yrs


= 10 + 1.15(8.8)

= 20.12

Kd = 13% (1 – 0.3)

WACC = WEKE + WDKD

= 0.5 x 20.12 + 0.5 x 9.1

= 14.6

Overall cost of capital from 5th year


= 9 + 1(8.8)

= 17.8

Kd = 12.86 ( 1 – 0.3)

WACC = WEKE + WDKD

= 3/5 x 17.8 + 2/5 x 9.002

= 14.28%

5

Statement of value of firm

Year Cash flow factor PV

1 56 0.873 49

2 67 0.761 51

3 81 0.664 54

4 96 0.580 56

4 375

0.1428 − 0.10 = 8761 0.580 5082

5292

Q7 Analysis –

a. This ques requires to ascertain Value of company or firm but further ask to

determine MP of share is correct or not.

Value of co = Value of equity + value of debt

From value of firm we vl deduct value of debt to get value of equity

b. Current value of firm is present value of all future free cash flows

But while computing value of firm we assume debt is not repaid i.e debt equity

ratio is maintained. However this ques mentions 30% debt is repaid in

2014(5th yr). it will be taken as normal cash outflow in 5th year and from 2015

ie 6 th year debt equity ratio will change so will WACC.

Statement of computation of tax rate

EBIT 245 lac

Interest 218.125 lac

EBT 26.875 lac

PAT (given) 17.20 lac

Tax paid 9.675 lac

Rate of tax 9.675/26.875 = 36%

Rate of interest on debt = 218.125

1934 = 11.28%

Statement of WACC WACC till 2014 = WEKE + WDKD

= 75 𝑙𝑎𝑐 𝑋 66

4650 +1934 x 16 +

1934

4650+1934 x 11.28(1-0.36)

= 13.54%

WACC from 2015 = WEKE + WDKD

6

= 75 𝑙𝑎𝑐 𝑋 66

4650 +1353.8 x 16 +

1934

4650+1353.8 x 11.28(1-0.36)

= 14.42%

Annual cash flows from 2015 are given

Statement of Free cash flow of firm

10 11 12 13 14

EBIT 264.6 285.77 308.63 333.32 360

PAT 169.344 182.89 197.52 213.32 230.39

Inc in Working cap 3.52 3.80 4.11 4.43 4.79

Debt repayment - - - - 580.2

FCFF 165.824 179.09 193.41 208.89 -354.6

Statement of value of firm

Year Cash flows Factor PV

2010 165.824 0.8807 146.10

2011 179.09 0.7757 138.97

2012 193.41 0.6832 132.10

2013 208.89 0.6017 125.75

2014 -354.6 0.53 -187.93

2014 240.336

0.1442 − 0.06 0.53 1512.735

867.725

Value of equity = value of company – outstanding debt

= 867.725 - 1353.80

= 513.925 lac

Value per share = 513.925 / 75 = 6.852

Value determined 6.852 is lower than actual MP of share, so share is overvalued

Q8 Statement of Free cash flow of firm

02 03 04 05 06 07

EBIT 500(1.09) 545(1.09) 594(1.09) 647.46(1.09) 705.73(1.09) 769.25(1.04)

= 545 = 594 = 647.46 = 705.73 = 769.25 = 800

Tax (35%) 190.75 207.9 226.61 247 269.25 280

PAT 354.25 386.1 420.85 458.73 500 520

+Depn 200(1.09) 218(1.09) 237.62(1.09) 259(1.09) 282.31(1.09)

= 218 = 237.62 = 259 = 282.31 = 307.72 CE = Depn

Less CE 300(1.09) 327(1.09) 356.43(1.09) 388.51(1.09) 423.48(1.09)

= 327 = 356.43 = 388.51 = 423.48 = 461.59 CE = Depn

Less Ch in WC 7000(1.09) 7000(1.09)2 7000(1.09)3 7000(1.09)4 7000(1.09)5 7000(1.09)5(1.04)

(0.2)-1400 (0.2)-1526 (0.2)-1663.4 (0.2)-1813.04 (0.2)- 1976.21 (0.2) – 2154.07

= 126 = 137.34 = 149.6 = 163.17 = 177.86 = 86.17

FCFF 119.25 129.95 141.74 154.39 168.27 433.83

7

Overall cost of capital from 2002 – 2006(5 yrs)


= 7 + 1.2(5.5)

= 13.6

Kd = 10%

WACC = WEKE + WDKD

= 0.5 x 13.6 + 0.5 x 0.10(1 – 0.35)

= 10.05%

Overall cost of capital from 2007


= 7 + 1(5.5)

= 12.5

Kd = 9%

WACC = WEKE + WDKD

= 0.75 x 12.5 + 0.25 x 0.10(1 – 0.35)

= 11%

Value of firm = PV of all future free cash flow of firm.

Year FCFF Factor PV

1 119.25 0.909 108.40

2 129.95 0.826 107.34

3 141.74 0.750 106.31

4 154.39 0.681 105.14

5 168.27 0.619 104.16

6 5 433.83

0.11−0.04

= 6197.57 0.619 3836.30

4367.65

Q10 value of firm according to book value weights = 750 lac

FCFF1 = 30 lac

G = 5%

Value of firm is present value of all future free cash flows

Po = 𝐹𝐶𝐹𝐹1

𝑊𝐴𝐶𝐶 − 𝑔

750lac = 30

𝑊𝑎𝑐𝑐 − 0.05

WACC = 30

750 + 0.05

= 9%

WACC = WEKE + WDKD

9 = x (12) + (1-x) 6

X = 0.5

8

Market value of equity = 3 Book value of equity

= 3 x 0.5

= 1.5

Market value of debt = Book value of debt

= 0.5

WACC (Mkt value) = WEKE + WDKD

1.5

2 x 12 +

0.5

2 x 6

= 10.5

Po = 𝐹𝐶𝐹𝐹1

𝑊𝐴𝐶𝐶 − 𝑔

= 30

0.105 − 0.05 = 545.45

Q11 a. d0 = 8.5 g = 7.5%

EPS = 27.50 RF = 12.5%

MP = 210.20 BV = 130.55

Po = 𝑑1

𝑘𝑒 − 𝑔

= 8.5 ( 1.075)

0.125 − 0.075

= 182.75

Fair price to BV ratio = 𝐹𝑎𝑖𝑟 𝑝𝑟𝑖𝑐𝑒

𝐵𝑉

= 182.75

130.55 = 1.40

b. 𝐸𝑥𝑖𝑠𝑡𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒

𝐵𝑉 =

210.20

130.55

= 1.61

𝑃0

𝐵𝑉 =

𝑅𝑂𝐸(1−𝑏)(1+𝑔)

𝑘𝑒− 𝑔

b = 27.5 − 8.5

27.5 = 0.691

1.4 = 𝑅𝑂𝐸(1−0.691)(1+0.075)

0.125− 0.075

1.4(0.05) = ROE x 0.3322

ROE acc to fair price = 0.2107

ROE according to existing price

𝐸𝑥𝑖𝑠𝑡𝑖𝑛𝑔 𝑃0

𝐵𝑉 =

𝑅𝑂𝐸(1−𝑏)(1+𝑔)

𝑘𝑒− 𝑔

1.61 = 𝑅𝑂𝐸(1−0.691)(1+0.075)

0.125− 0.075

9

ROE = 0.2423

Increase in ROE to justify existing price to BV ratio of 1.61 =

0.2423 − 0.2107

0.2107 x 100 = 15%

Q12 a. Statement of PV of FCFF

Year FCFF Factor PV

1 213(1.15) = 245 0.917 224.665

2 245(1.15) = 281.75 0.842 237.23

3 281.75(1.15) = 324.01 0.772 250.14

4 324.01 (1.15) = 372.61 0.708 263.81

5 372.61(1.15) = 428.50 0.650 278.53

6 5 428.5 (1.05)

0.09−0.05 = 11,248.13 0.650 7311.29

8565.665

b. value of firm = PV of FCFF + PV of non operating profit

(PV of operating profit) (PV of future intt from market sec)

= 8575 + 650

= 9225

Value of firm = Value of equity + Value of debt

9225 = VE + 2600

VE = 9225 – 2600

= 6625

Q13 a. Ke = RF + βE (RM - RF)

= 6.25 + 1.05 (5.5)

= 12.025

Po = 𝑑1

𝑘𝑒 − 𝑔

= 1.7 ( 1+0.07)

0.12025 − 0.07 = ₹ 36.20

b. Value per share is PV of all future FCFE

FCFE = PAT – ( 1 - 𝑑

𝑑+𝐸 )( CE – depn + ch in WC)

= 3.20 – ( 1 - 1600

1600 + (160 𝑋 51) ) (

475

160 -

350

160 )

= 3.2 – ( 9760 − 1600

9760 ) (0.78125)

= ₹ 2.55 / share

Value per shar = 𝐹𝐶𝐹𝐸1

𝑘𝑒 − 𝑔

= 2.55 (1.07)

0.12025 − 0.07 =

2.7285

0.05025

Value per share = ₹ 54.30

10

c. under a dividend discount model, future dividends payable to equity are capitalized to

determine current market price i.e total earning or EPS is not discounted for

determination of Market price.

Under FCFE method total cash flow available for equity is discounted to determine

current market price.

Market price according to FCFE shall be considered as a benchmark to compare with

actual market price.

Q14 P0 = 38.5

EPS = 1.36

DPS = 0.64

PE = 28.3

Price/BV = 7.1

Price/sales = 2.9

ROE = 27%

Profit margin on sales = 10.9%

Rf = 4.9%

Rm – Rf = 5.5%

β = 1.2

a. According to CAPM

Required return on equity = RF + β (RM - RF)

= 4.9 + 1.2 ( 5.5%)

= 11.5%

b. g = 9%

PE ratio = 𝐶𝑀𝑃( 𝑃0 )

𝐸𝑃𝑆 Po =

𝑑1

𝑘𝑒 − 𝑔

= 𝑑1

𝑘𝑒 − 𝑔 x

1

𝐸𝑃𝑆

= 𝐸0 ( 1+𝑔)(1−𝑏)

𝑘𝑒 − 𝑔 x

1

𝐸𝑃𝑆

= ( 1+𝑔)(1−𝑏)

𝑘𝑒 − 𝑔 EPS = 1.36

= ( 1+0.09)( 0.47)

0.115 − 0.09 Div = 0.64

= 20.49 D/P ratio (1-b)= 0.64

1.36 = 0.47

P/B ratio = 𝑅𝑂𝐸(1−𝑏)(1+𝑔)

𝑘𝑒− 𝑔

= 0.27 ( 0.47)(1.09)

0.115 − 0.09

= 5.53

11

If ROE is based on expected earnings of next time period

PB ratio can b calculated as

PB ratio = 𝑅𝑂𝐸 − 𝑔

𝑘𝑒− 𝑔

P/S ratio = 𝐸0 ( 1+𝑔)(1−𝑏)

𝑘𝑒 − 𝑔 x

1

𝑠𝑎𝑙𝑒𝑠

= 𝑠𝑎𝑙𝑒𝑠 𝑋 𝑃𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 𝑟𝑎𝑡𝑖𝑜 ( 1+𝑔)(1−𝑏)

𝑘𝑒 − 𝑔 x

1

𝑠𝑎𝑙𝑒𝑠

= 𝑃𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 𝑟𝑎𝑡𝑖𝑜 ( 1+𝑔)(1−𝑏)

𝑘𝑒 − 𝑔

= 0.109 (1.09)(0.47)

0.115 − 0.09

= 0.05584

0.025 = 2.2336

b. Statement of evaluation

existing Required

PE ratio 28.3 20.49 existing > required = under

PB ratio 7.10 5.53 existing > required = under

P/S ratio 2.90 2.2336 existing > required = under

Thus according to PE ratio and PB ratio and PS ratio, security is underpriced

Q16 Balance sheet

2002 2003 2002 2003

S. Capital 200 1080 Fixed assets 500 600

Reserves 140 Stock 300 360

L.T.Loan 360 Debtors 240 288

ST.Loan 200 Cash / Bank 60 72

Creditors 120 144

Provisions 80 96

1100 1320 1100 1320

Amount of finance = Revised Eq & Debt - Existing Eq & Debt

= 1080 - ( 200 + 140 + 360 + 200)

= 180

Revised sales value = 600 x 120% = 720 lac

For 2003

Profit for 2003 = 720 x 4% = 28.80

Dividend = 50% of profit = 14.40

Retention = 14.40

12

Amount of External Finance = Total finance – Addition to retained earnings

= 180 – 14.4 = 165.6

Current ratio = 𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠

𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝑐.𝐿𝑖𝑎𝑏 +𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝑆.𝑇 𝑙𝑜𝑎𝑛

1.33 = 360 +288+72

144+96+𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝑆𝑇 𝑙𝑜𝑎𝑛

Revised ST loan = 301.35

Additional ST loan = Revised – Existing

= 301.35 – 200

= 101.35

𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝐹𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠

𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝐿𝑇 𝑙𝑜𝑎𝑛 = 1.5

600

𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝐿𝑇 𝑙𝑜𝑎𝑛 = 1.5

Revised LT loan = 400

Additional LT loan = Revised - Existing

= 400 – 360

= 40

External finance = 165.60

Additional ST Loan + Additional LT loan + Additional EQ = 165.60

101.35 + 40 + Additional Eq = 165.60

Additional Eq = 24.25

𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝐿𝑇 𝑑𝑒𝑏𝑡𝑠

𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝐸𝑞𝑢𝑖𝑡𝑖𝑒𝑠 =

360 +40

200+140+14.4+24.25

= 400

378.65 = 1.05

Q17 Statement of free cash flow

Alpha Beta

Sales 96,000 48,000

Less : COGS 72,000 28,800

EBIT 24,000 19,200

Tax 9600 7680

Free cash flow 14,400 11,520

13

Value of firms before merger = 𝐹𝐶𝐹𝐸1

𝑘𝑒 − 𝑔

alpha = 14,400 (1.04)

0.10 − 0.04 = 2,49,600

Beta = 11,520 (1.06)

0.12−0.06 = 2,03,520

Combined value of firm with no synergy = 4,53,120

Value of firm with synergy effect on combining the two firms, the cost of goods

sold is reduced from 70% to 65% of sales.

sales of combined firm = Rs 96,000 + Rs 48,000 = Rs 1,44,000

Cost of goods sold = Rs 1,44,000 x 0.65 = Rs 93,600

WACC of combined firm = 0.10 x 2,49,600

4,53,120 + 0.12 x

2,03,520

4,53,120 = 11%

Weighted average expected growth rate for the combined firm

= 0.04 x 0.550847 + 0.06 x 0.4491525

= 0.022 + 0.027

= 5%

Statement of Free cash flow Firm with no synergy Firm with synergy

Sales 1,44,000 1,44,000

COGS 1,00,800 93,600

EBIT 43,200 50,400

G 5% 5%

Cost of cap 11% 11%

Free cash flow EBIT x (1 – 0.4) 25,929 30,240

Value of firm without synergy = 25,920 (1.05)

0.11−0.05 = 4,53,600

Value of firm with synergy = 30,240 (1.05)

0.11 − 0.05 = 5,29,200

Q19 Financial leverage = 1.4

𝐸𝐵𝐼𝑇

𝐸𝐵𝑇 = 1.4

𝐸𝐵𝐼𝑇

𝐸𝐵𝐼𝑇 − 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 1.4

EBIT = 1.4 EBIT - 1.4 x 40

0.4 EBIT = 56

EBIT = 140 WACC = WEKE + WDKD

= 170 + 130

300 + 400 17.5 +

400

700 x 10 (1 – 0.3)

= 11.5

14

EVA = EBIT (1 – tax rate) - WACC x Total Investment

= 140lac (1 – 0.3) - 0.115 x 700 lac

= 17.5 lac

Q20 a WACC = WEKE + WDKD

Orange = 0.2 x 26 + 0.8 x 16(1 – 0.35) = 13.52

Grape = 0.5 x 22 + 0.5 x 13 (1 – 0.35) = 15.225%

Apple = 0.2 x 20 + 0.8 x 15 (1 – 0.35) = 17.95%

b EVA = EBIT (1 – tax rate) - WACC x Total Investment

Orange = 25,000(1 – 0.35) – 0.1352 x 1,00,000 = 2,730

Grape = 25,000 (1 – 0.35) – 0.15225 x 1,00,000 = 1,025

Apple = 25,000 ( 1 – 0.35) – 0.1795 x 1,00,000 = - 1700

c. Since EVA of orange is highest and its WACC is lower, so orange is considered as

best investment

d. Statement of EPS

Orange Grape Apple

EBIT 25,000 25,000 25,000

Interest 12,800 6,500 3,000

EBT 12,200 18,500 22,000

EAT 65% 7930 12,025 14,300

Shares 6100 8300 10,000

EPS 1.3 1.45 1.43

MP EPS X PE 14.3 15.94 15.73

E Market cap(MP x No. of sh) 87,230 1,32,302 1,57,300

Q21 Statement of EBIT

PAT 15 lacs

PBT 15 / 0.6 25 lac

Interest 15 lac

EBIT ( 25 lac + 15 lac) 40 lac


15

= 40 lac x 0.6 – 0.126 x 100,00,000

= 24,00,000 – 12,60,000

= 11,40,000

Cost of funds of Delta Ltd is 12.6%, i.e on total capital employed of 10,00,000

delta has to yield 12,60,000 to keep its market value unchanged. Thus capital

employed should remain 10,00,000

Company has surplus funds of 11,40,000, which company can use either to

pay dividend to shareholders or can be reivested to increase earnings.

Maxmum dividend co. can pay without affecting existing cap employed and

affecting value of firm is 11,40,000 / 2,50,000 = ₹ 4.56/share

If dividend is not paid additional funds of can be use to earn higher returns

next year

Q22 Surplus cash = 100 lacs

Distributed = 27% of 100 lac = 27 lac

a. Market cap after buyback = No. of shares after Buyback x MP after .

. buyback

210 lac = ( 10,00,000 - 27,00,000

𝑥 ) 1.1x

210 lac = 11 lac x – 29.7 lac

239.7 lac = 11 lac x

X = 21.79

b. No. of shares bought = 27,00,000

21.79 = 1,23,910 shares

c. EPS after buyback = 𝑡𝑜𝑡𝑎𝑙 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠

𝑁𝑜.𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑎𝑓𝑡𝑒𝑟 𝑏𝑢𝑦𝑏𝑎𝑐𝑘

= 10 𝑙𝑎𝑐 𝑋 3

10,00,000−1,23,910 = 3.424

After buyback EPS per share is increased by 0.424/3 = 14.13%

Q23 EVA = EBIT (1 – tax rate) - WACC x Total Investment

Statement of total investment

Working capital 20 lac

Property, plant and equipment 80 lac

Patent rights 40 lac 140 lac

EVA = 12 - (0.15 x 140)

= 9 lac

16

Q24 Same as 21

Q25 same as 10

Q26 Cost of advertisement, benefit of which will last for 3 years has been completely

written off.

Statement of profit

Operating profit 20,20,00,000

+ Advertisement exp of coming 2 years 2,00,00,000

22,20,00,000

Capital invested 84,00,00,000


= 22,20,00,000 - 84 crore x 0.11

= 22.2 crore – 9.24 crore

= 12.96 crore

Documents

Valuation of Business Solution