CA Final · Advanced Financial Management · Business Valuation
Arjun Engineering expects FCFE of ₹120 lakh next year, growing at 5% forever. Its cost of equity is 15%. It has 10 lakh shares. What is the value per share?
Value per share is ₹120. Equity value is next year's FCFE of ₹120 lakh divided by the difference between cost of equity 15% and growth 5%, giving ₹1,200 lakh, which spread over 10 lakh shares is ₹120 per share.
- A₹120Correct
- B₹126
- C₹80
- D₹84
Explanation
Equity value = FCFE1 / (ke - g) = 120 / (0.15 - 0.05) = ₹1,200 lakh. Divided by 10 lakh shares gives ₹120. The ₹126 option wrongly grows the cash flow again, applying (1+g) to an already next-year figure.
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