Specimen
1370 others answered this question
Question 2a ii
GWW Co is a listed company which is seen as a potential target for acquisition by financial analysts. The value of the company has therefore been a matter of public debate in recent weeks and the following financial information is available:
Statement of financial position information for 2012
| Year | 2012 | 2011 | 2010 | 2009 |
|---|---|---|---|---|
| Profit after tax ($m) | 10·1 | 9·7 | 8·9 | 8·5 |
| $m | $m | |
|---|---|---|
| Non-current assets | 91·0 | |
| Current assets | ||
| Inventory | 3·8 | |
| Trade receivables | 4·5 | 8·3 |
| Total assets | 99·3 | |
| Equity finance | ||
| Ordinary shares | 20·0 | |
| Reserves | 47·2 | 67·2 |
| Non-current liabilities | ||
| 8% bonds | 25·0 | |
| Current liabilities | 7·1 | |
| Total liabilities | 99·3 |
The shares of GWW Co have a nominal (par) value of 50c per share and a market value of $4·00 per share. The business sector of GWW Co has an average price/earnings ratio of 17 times.
The expected net realisable values of the non-current assets and the inventory are $86·0m and $4·2m, respectively.
In the event of liquidation, only 80% of the trade receivables are expected to be collectible.
Required:
(a) Calculate the value of GWW Co using the following methods:
(ii) net asset value (liquidation basis); and
Note: The total marks will be split equally between each part. (6 marks)