Calculation of Value of Preference Share

Step 1: Calculation of Outstanding Dividend
Outstanding dividend is the amount of dividend that has not been paid to the preference shareholders. In this case, it is 2 years.

Outstanding dividend = 2 years x Rs. 100 per share = Rs. 200 per share

Step 2: Calculation of Normal Rate of Return
Normal rate of return is the rate of return expected by the investors on their investment. In this case, it is 10%.

Step 3: Calculation of Value of Preference Share
The value of preference share can be calculated using the following formula:

Value of preference share = Dividend / Normal Rate of Return

Value of preference share = (Face value of share – Outstanding dividend) / Normal Rate of Return

Value of preference share = (Rs. 100 – Rs. 200) / 10%

Value of preference share = -Rs. 1,000

Explanation of the Result
The value of preference share is negative, which means that the preference shareholders will not receive any return on their investment. This is because the outstanding dividend is more than the face value of the share. The preference shareholders will not be able to recover their investment until the company pays off the outstanding dividend.

Conclusion
The value of preference share is negative in this case, which indicates that the preference shareholders will not receive any return on their investment until the outstanding dividend is paid off. It is important for the company to pay off the outstanding dividend to maintain the trust and confidence of the investors.