13 Equity Share Valuation—Various Methods. CDC Ltd owns a chain of tyre and exhaust fitting garages in the West of England. The company has been approached by ATD plc, which owns a large chain of petrol stations, with a view to a takeover of CDC Ltd. ATD plc is prepared to make an offer in cash or a share-for-share exchange. The most recent accounts of CDC Ltd are summarised below:

Profit and Loss Account for the year ended 30 November 19×1

£m Turnover 18.7 Profit before interest and tax 6.4 Interest 1.6 Profit before tax 4.8 Corporation Tax 1.2 Net profit after taxation 3.6 Dividend 1.0 Retained profit 2.6 Balance Sheet as at 30 November 19×1 £m £m £m Fixed Assets Freehold land and premises at cost 4.6 Less accumulated depreciation 0.6 4.0 Plant and machinery at cost 9.5 Less accumulated depreciation 3.6 5.9 9.9 Current Assets Stock at cost 2.8 Debtors 0.4 Bank 2.6 5.8 Less: creditors amounts due within one year Trade creditors 4.3 Dividends 1.0 Corporation Tax 1.2 6.5 (0.7)
Total assets less current liabilities 9.2 Less: creditors amounts due beyond one year Loans 3.6 Net assets 5.6 Share capital and reserves Ordinary £1 shares 2.0 Profit and loss account 3.6 Equity shareholders’ funds 5.6 The accountant for CDC Ltd has estimated the future free cash flows of the company to be as follows:
19×2 19×3 19×4 19×5 19×6 £m 4.4 4.6 4.9 5.0 5.4 Free cash flows for the 12 years after 19×6 are estimated to be the same as 19×6.
The company’s overall cost of capital is 10 per cent.
CDC Ltd has recently had a professional valuer establish the current resale value of its assets. The current resale value of each asset was as follows:
£m Freehold land and premises 18.2 Plant and machinery 4.2 Stock 3.4