Growth plc made a cash offer for all of the ordinary shares of Beta Ltd on 30 October 20X9 at £2.75 per share. Beta€™s accounts for the year ended 31 March 20X9 showed:

Additional information:
(i) The half yearly profits to 30 September 20X9 show an increase of 25% over those of the corresponding period in 20X8. The directors are confident that this patter n will continue, or increase even further.
(ii) The Beta directors hold 90% of the ordinary shares.
(iii) Following valuations are available:
Realisable values
£000
Buildings ........... 2,500
Other non-current assets ..... 700
Current assets ......... 2,500
Net Replacement values
Buildings ........... 2,600
Other non-current assets ..... 1.800
Current assets ......... 2,200
(iv) Shares in quoted companies in the same sector have a P/E ratio of 10. Beta Ltd is an unquoted company.
(v) One of the shareholders is a bank manager who advises the directors to press for a better price.
(vi) The extra risk for unquoted companies is 25% in this sector.

Required:
(a) Calculate valuations for the Beta ordinary shares using four different bases of valuation.
(b) Draft a report highlighting the limitations of each basis and advise the directors whether the offer isreasonable.

Transcribed Image Text:

Profit for the year after tax Dividends paid and proposed Retained profit for the year £000 750 250 500 Statement of financial position as at 31 March 20X9 Buildings Other tangible non-current assets 1,600 1,400 3,000 Current assets Current liabilities 2,000 1,400 600 3,600 l Ordinary shares Retained earnings 2,500 1,100 3,600