Following information is available: 1. 2,000 10% preference shares of Rs. 100 each Rs. 2,00,000 2. 10,000 Equity shares of Rs. 100 each Rs. 60 per share paid up Rs. 6,00,000 3. Expected profit per year before tax Rs. 3,20,000 4. Rate of Tax 50% 5. Transfer to general reserve every year 20% of net profit 6. Normal rate of earnings 15% The value of equity share as per yield value method would be:

The correct answer is A. 120.

The yield value method is a method of valuation of shares that takes into account the expected dividend yield of the share. The formula for calculating the yield value of a share is:

Yield value = Expected dividend per share / Required rate of return

In this case, the expected dividend per share is Rs. 10 (20% of Rs. 50, which is the net profit after tax and transfer to general reserve). The required rate of return is 15%. Therefore, the yield value of the share is Rs. 120 (Rs. 10 / 0.15).

Option B is incorrect because it is the value of the preference share. Option C is incorrect because it is the value of the equity share if the required rate of return was 10%. Option D is incorrect because it is the value of the equity share if the expected dividend per share was Rs. 5.

Here is a step-by-step solution to the problem:

1. Calculate the net profit after tax and transfer to general reserve:

Net profit before tax = Rs. 3,20,000

Rate of tax = 50%

Transfer to general reserve = 20% of net profit = Rs. 64,000

Therefore, net profit after tax and transfer to general reserve = Rs. 128,000

1. Calculate the expected dividend per share:

Expected dividend per share = 20% of net profit after tax and transfer to general reserve = Rs. 25.60

1. Calculate the required rate of return:

Required rate of return = 15%

1. Calculate the yield value of the share:

Yield value = Expected dividend per share / Required rate of return = Rs. 120