DREAMLAND LTD

Question $1$

SELINAMLTD operates in the manufacturing industry in Ghana. The company is in the process

of selling some of its shares to the general public in order to raise enough funds to expand its

operations. Below are the financial statements of the company:

Statement of profit or loss for the year ended $30$ June, $2023$

Selling, general & administration expenses $,(45,570)$

Profit before interest & taxces $,18,680$

Profit after tax $,9,250$

Statement of changes in equity $($extracts$)$ for the year ended $30$ June, $2023$

Statement of Financial Position as at $30$ June, $2023$ Revaluation Surplus

Retained Earning$5$

$26,725$

$52,020$

$128,745$

Additional relevant information:

The share capital of the company is composed of:

$GHc000$

$10,000$

$40,000$

$50,000$

$20\%$ redeemable preference shares

Ordinary shares $($issued @GHe$0\mathrm{.}20$ each$)$

$26,725$

$52,{020}_{?}$

$128,{745}_{?}$

A review of the development expenditure indicated that only $50\%$ of it is worthwhile.

An independent waluer has placed values on some of the assets of Selinam Ltd below:

Profit forecasts for the next five years of $elinam Ltd are as follows: The estimated profit

before tax figures are anrived at before charging the eatimated depreciation charges.

The patents in the statement of financial position represents a license to produce an

improved variety of a product and is expected to generate a pre$-$tax profit of GHe$10,000$

per year for the next five years $[$Annuity factor for is $3\mathrm{.}670]$

Dzata Limited is a competitor company listed on the Ghana Stock Exchange and data

extracted from its recently published financial statements revealed the following details:

Market capitalisation

Number of ordinary shares

Eamings per share

Dividend pawout ratio

GHe $1,000,000$

$800,000$

GHe$0.20$

$80\%$

The cost of capital of Selinam Ltd is $10\%.$ Required:

a$.$ Determine the value to be placed on each share of SELINAM LTD using the following

methods of valuation:

i$)$ Net assets;

ii$)$ Price$-$earnings ratio $[$Profit defined as weighted average of $5$ years profit forcast$]$

iii$)$ Dividend yield;

in$)$ Discounted cash flow

b$.$ Explain $4$ events that may call for business valuation

$20$ marks

$5$ marks

$[$Total $25$ marls$]$