Prentice Foods Ltd prepares ready-to-cook foods which are mainly sold as 'own label' products by one of the leading UK supermarket chains. Most of the company's shares are, owned by ten members of the Prentice family, but there are six senior managers who have very small holdings.

The company's 1996 annual report contained financial statements which can be outlined as follows:

The 1996 results are regarded as fairly typical of those over recent years and they are in line with expectations for the foreseeable future. Prentice Foods Ltd is a mature business. The company has a well-established policy of replacing its fixed assets on a rolling programme, so the amount spent on fixed assets each year is fairly constant.
Average figures for Stock Exchange listed companies in the food producing sector are:

\section*{Requirements}

(a) Estimate the value of an ordinary share in Prentice Foods Ltd in three ways. Clearly explain the basis of your estimations and justify any assumptions which you have made.
( 9 marks)

(b) Suggest a suitable price per share for each of the following possible transactions:
(i) The purchase of 500 shares by one manager from another manager. The shares represent each manager's only holding of the company's shares.
(ii) The purchase of the entire share capital by a conglomerate.
Your suggested prices should be explained and justified.
You should also outline any additional information which you feel would enable you to make a more informed valuation.

Transcribed Image Text:

Profit and loss account for the year ended 31 August 1996 Turnover Operating profit Interest payable Tax '000 82.360 11242 (1000) 10242 (3286) Dividends Retained profit for the year 6956 (2600) 4356