Following are the information of two companies for the year ended 31st March, 2019: Alpha Ltd. (₹) Beta Ltd. (₹) Equity shares of ₹10 each 4,00,000 5,00,000 10% Preference shares of ₹10 each 3,00,000 2,00,000 Profit afte

CS Executive · Company Accounts & Auditing Practices · PYQS · December 2019
Following are the information of two companies for the year ended 31st March, 2019: Alpha Ltd. (₹) Beta Ltd. (₹) Equity shares of ₹10 each 4,00,000 5,00,000 10% Preference shares of ₹10 each 3,00,000 2,00,000 Profit after tax 1,50,000 1,50,000 Assuming that the market expectations is 18% and 80% of the profits are available for distribution. What is the price per share you would pay for equity shares of each company if you want to acquire 20% shares of these companies on the basis of rate of dividend ?

Answer & Explanation:

Calculation of Earnings Per Share Particulars Alpha Ltd. (₹) Beta Ltd. (₹) Profit after Tax 1,50,000 1,50,000 Less: Preference Dividend @ 10% (30,000) (20,000) Profit available to Equity Shareholders 1,20,000 1,30,000 Profit available for distribution @ 80% 96,000 1,04,000 No. of Equity Shares Outstanding 40,000 50,000 Dividend Per Share = Profit available / No. of Shares 2.40 2.08 Expected Rate of Dividend 2.40/10*100 = 24% (2.08/10*100) = 20.8% Value per share = Expected Rate of Dividend / Normal Rate of Dividend * face Value (24/18*10) = 13.33 per share (20.8/18*10) = 11.55 per share

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