Eagle Ltd. reported a profit of 770 lakhs after 30% tax for the financial year 2021-22. An analysis of the accounts revealed that the income…
CA Final · Advanced Financial Management · MTP · May 2026
Eagle Ltd. reported a profit of 770 lakhs after 30% tax for the financial year 2021-22. An analysis of the accounts revealed that the income included extraordinary items of 80 lakhs and an extraordinary loss of 100 lakhs. The existing operations, except for the extraordinary items, are expected to continue in the future. In addition, the results of the launch of a new product are expected to be as follows: In lakhs Sales 700 Material costs 200 Labour costs 120 Fixed costs 100 You are required to suggest the value of the business, given that the capitalization rate is 14%.
Suggested Answer and Working Notes:
Computation of Business Value (₹ Lakhs) Profit before tax 770 / (1-0.30) 1100 Less: Extraordinary income (80) Add: Extraordinary losses 100 1120 Profit from new product Sales 700 Less: Material costs 200 Labour costs 120 Fixed costs 100 (420) 280 1400.00 Less: Taxes @30% 420.00 Future Maintainable Profit after taxes 980.00 Relevant Capitalisation Factor 0.14 Value of Business (₹ 980/0.14) 7000
Topics: Business Valuation
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