Chungu Ltd is considering taking over Tamu ltd so as to consolidate their market share. The

following is the summarized financial information for Tamu Limited over the last three years.

Income statement :( Figures-sh000)

	2017	2018	2019
Turnover	96,250.00	101,450.00	1,000.00
Taxable income	15,150.00	18,350.00	24,500.00
Taxation	5,150.00	6,350.00	8,000.00
Profit after tax	10,000.00	12,000.00	16,500.00
Dividend	2,500.00	4,000.00	6,500.00
Retained earnings	7,500.00	8,000.00	10,000.00

Statement of financial position:

2019

Shs000

Non-current assets 75,000

Current assets 40,500

Current Liabilities (30,000)

90,500

Ordinary shares (sh 10 par value) 40,000

Reserves 25,500

10% Debenture (sh 100 par value) 25,000

90,500

A a result of recent capital investment, stock market analysts expect that the firms post tax

earnings and dividends will increase by 15% per annum for the next two years and then revert to

the companys existing (Historical) growth rate.

Tamus asset beta is 0.950 and the beta coefficient of equity is 0.85.The risk free rate of return

is10 % and the market return is 18%.The current market price of ordinary shares is

sh18.7 for 2019 dividend. The debenture current price is 89.50 ex-interest. Corporate tax rate is

30%

Required:

a) Estimate what a fundamental analyst might consider to be the current intrinsic (realistic) value

of the companys shares (10 Marks)