Growth pic made a cash offer for all of the ordinary shares of Beta Ltd on 30 September 20X9 at £2.75 per share. Beta's accounts for the year ended 3 I March 20X9 showed:

Additional information: (1) The half yearly profits to 30 September 20X9 show an increase of 25% over those of the corres- ponding period in 20X8. The directors are confident that this pattern will continue, or increase even further. (ii) The Beta directors hold 90% of the ordinary shares. (iii) The following valuations are available:

(iv) Shares in quoted companies in the same sector have a PE 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 is reasonable.

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Profit for the year after tax Dividends paid 000 750 250