CA Final · Advanced Financial Management · Business Valuation
Rohan Traders Pvt Ltd is being valued on a liquidation (break-up) basis. Its assets are expected to realise ₹240 lakh. Liquidation expenses are estimated at ₹12 lakh. Outside liabilities are ₹150 lakh and preference share capital repayable at par is ₹30 lakh. There are 6 lakh equity shares. What is the liquidation value per equity share?
The liquidation value is ₹8 per equity share. Realisable assets of ₹240 lakh are reduced by liquidation expenses of ₹12 lakh, outside liabilities of ₹150 lakh and preference capital of ₹30 lakh, leaving ₹48 lakh for equity. Dividing by 6 lakh shares gives ₹8.
- A₹8Correct
- B₹10
- C₹12
- D₹13
Explanation
Amount available to equity = 240 − 12 − 150 − 30 = ₹48 lakh. Per share this is 48/6 = ₹8. Ignoring liquidation expenses gives ₹10, and ignoring the preference claim gives ₹13, both of which overstate equity's residual claim.
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