From the following figures calculate the value of a share of ₹10 on (1) dividend basis, and (2) return on capital employed basis. The market expectation is 12%: Year Ended 31st March Capital Employed (₹) Profit (₹) Divid

Valuation of Shares on Dividend Basis The dividend rate on simple average as 65/4 = 16.25%. But since the dividend has been missing, it would be better to take the weighted average which comes to 17.60% as mentioned below: Year Dividend % Weight Product 2014 12 1 12 2015 15 2 30 2016 18 3 54 2017 20 4 80 Total 10 176 Weighted average dividend rate = 176 / 10 = 17.60% Value of Shares on dividend basis = (Weighted average dividend rate / Market expectation) * Face Value = (17.60 / 12) * ₹10 = ₹14.67 Valuation of Shares on Return on Capital Employed Basis The return on capital employed for each year and its weighted average is as follows: Year Return on capital employed % Weight Product 2014 (80,000 / 5,00,000) * 100 = 16 1 16 2015 (1,60,000 / 8,00,000) * 100 = 20 2 40 2016 (2,20,000 / 10,00,000) * 100 = 22 3 66 2017 (3,75,000 / 15,00,000) * 100 = 25 4 100 Total 10 222 Weighted average return on capital employed = 222 / 10 = 22.20% Value of Shares on return on capital employed basis = (Weighted average return on capital employed / Market expectation) * Face Value = (22.20 / 12) * ₹10 = ₹18.50