R. Johnson inherited 810,000 £1 ordinary shares in Johnson Products Ltd on the death of his uncle in 20X5. His uncle had been the founder of the company and managing director until his death. The remainder of the issued shares were held in small lots by employees and friends, with no one holding more than 4%.

R. Johnson is planning to emigrate and is considering disposing of his shareholding. He has had approaches from three parties, who are:
1 A competitor - Sonar Products Ltd. Sonar Products Ltd considers that Johnson Products Ltd would complement its own business and is interested in acquiring all of the 8 10,000 shares. Sonar Products Ltd currently achieves a post-tax return of 12.5% on capital employed.
2 Senior employees. Twenty employees are interested in making a management buyout with each acquiring 40,500 shares from R. Johnson. They have obtained financial backing, in principle, from the company’s bankers.
3 A financial conglomerate - Divest pic. Divest pic is a company that has extensive experience of acquiring control of a company and breaking it up to show a profit on the transaction. It is its policy to seek a pre-tax return of 20% from such an exercise.
The company has prepared draft accounts for the year ended 30 April 20X9. The following information is available.

(a) Past earnings and distributions:

Required:

(a) As accountant for R. Johnson, advise him of the amount that could be offered for his share¬ holding with a reasonable chance of being acceptable to the seller, based on the information given in the question, by each of the following:
(i) Sonar Products Ltd;
(ii) the 20 employees;
(iii) Divest pic.

(b) As accountant for Sonar Products Ltd, estimate the maximum amount that could be offered by Sonar Products Ltd for the shares held by R. Johnson.

(c) As accountant for Sonar Products Ltd, state the principal matters you would consider in deter¬ mining the future maintainable earnings of Johnson Products Ltd and explain their relevance.

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Year ended 30 April 20X5 20X6 20X7 20X8 20X9 Profit/(Loss) after tax % 79,400 (27,600) 56,500 88,300 97,200 Gross dividends declared (b) Statement of financial position of Johnson Products Ltd as at 30 April 20X9: Non-current assets Land at cost Premises at cost Aggregate depreciation Equipment at cost Aggregate depreciation Current assets Inventories 9 +56 4 000 000 376 724 216 508 649 353 296 141 Receivables 278 Cash at bank 70 489. Payables due within one year (335) Net current assets 154 Non-current liabilities (158) 1.176 Represented by: El ordinary shares Retained earnings 1,080 96 1,176