AZ Ltd, is considering to acquiring BC Ltd, for the expansion of businessoperation. It is considering income approach for the valuation of the businessof BC Ltd. In income approach of business valuation, a business is valued at thepresent value of its future earnings or cash flows. Future earnings/ cash flowsare determined by projecting the businesss earnings/ cash flows and adjusting them for changes in growth rate, cost structure and taxes etc. The present valueis determined using a discount rate which reflects the required rate of return ofthe investor. The business of AZ Ltd and BC Ltd are valued at Rs.100 crore andRs. 25 crore respectively. The growth rate of BC ltd is 8% and of AZ Ltd is16%. The required rate of returns of AZ Ltd and BC Ltd are 18% and 125respectively. PATs of the AZ ltd are Rs.1000 crore and Rs. 450 crorerespectively. (d= Discount rate, g= Growth rate)

1.What are the annual future earnings of the AZ using Capitalization of Earning Method?

2.Which of the following is the capitalization rate of the BC Ltd?

3.There are two income- based approaches that are primarily used whenvaluing a business, the capitalization of Cash Flow Method and the____.