The capital structure of a company is as follows:
|
12% Preference shares of 10 each |
2,50,000 |
|
Equity shares of 10 each |
4,00,000 |
|
Reserves & Surplus |
2,00,000 |
|
10% Debentures |
3,00,000 |
|
11% Term loan |
3,50,000 |
|
_________ |
The average annual profit before payment of tax and interest is Rs.3,00,000. The income tax rate is 45%.
You are required to state what valuation should be put upon the equity shares of the company if the applicable price earnings ratio is 9?