From the following information calculate Capitalised value of the firm.
Normal Rate of Return - 12%
Profits for last three years-
i. ₹80,000 (including gain on the sale of fixed assets of ₹30,000)
ii. ₹1,50,000
iii. ₹2,00,000 (including a loss by theft of ₹32,000).
Answer & explanation
Correct answer: option 1
The correct answer is option 1- ₹12,00,000.
Average profit = [(80,000 - 30,000) + 1,50,000 + ( 2,00,000 + 32,000)/]3
= (50,000 + 1,50,000 +2,32,000)/3
= 4,32,000/3
= ₹1,44,000
Capitalised Value of business = Average profit x 100 / Normal rate of return
= 1,44,000 x 100/12
= 12,00,000