The following particulars are available of ABC Ltd. : (i) Capital: 45,000, 6% preference shares of ₹10 each, fully paid; 45,000, equity shares of ₹10 each fully paid up. (ii) External liabilities ₹75,000. (iii) Reserves

Calculation of Intrinsic Value of Shares: Net Assets will be equal to Capital, Reserve and Surplus Preference Share Capital = 45,000 shares * ₹10 = ₹4,50,000 Equity Share Capital = 45,000 shares * ₹10 = ₹4,50,000 Reserves and Surplus = ₹35,000 Total Shareholder's Funds = ₹4,50,000 + ₹4,50,000 + ₹35,000 = ₹9,35,000 Less: Fictitious Assets = ₹3,500 Shareholder's Assets (Net Assets) = ₹9,35,000 - ₹3,500 = ₹9,31,500 Less: Preference Share Capital = ₹4,50,000 Net Assets available to equity shareholders = ₹9,31,500 - ₹4,50,000 = ₹4,81,500 Number of Equity Shares = 45,000 Intrinsic Value of Shares = Net Assets available to equity shareholders / Number of Equity Shares = ₹4,81,500 / 45,000 = ₹10.70 Calculation of Yield Value: Average Profit after tax = ₹85,050 Less: Transfer to reserve = ₹10,000 Less: Preference Dividend (6% of ₹4,50,000) = ₹27,000 Profits available to Equity Shareholders = ₹85,050 - ₹10,000 - ₹27,000 = ₹48,050 Expected rate of return on Equity Capital = (Profits available to Equity Shareholders / Equity Share Capital) * 100 = (₹48,050 / ₹4,50,000) * 100 = 10.68% Value of Shares (Yield Value) = (Expected rate of return / Normal rate of return) * Face Value = (10.68 / 9) * ₹10 = ₹11.87 Fair Value of Shares: Fair Value of Shares = (Intrinsic Value + Yield Value) / 2 = (₹10.70 + ₹11.87) / 2 = ₹11.28