Easy$-$Rent owns a chain of video rental shops. The company has been approached by Fill$-$it$-$up Pty Ltd$,$ which owns

a large chain of petrol stations, with a view to a takeover of Easy$-$Rent. Fill$-$it$-$up is prepared to make an offer in

cash or a share$-$for$-$share exchange. The most recent accounts of Easy$-$Rent are shown below:

Statement of Profit and Loss for the year ended $31$ December $2023$

P$$ million

Turnover $25\mathrm{.}0$

Profit before interest and tax$*7\mathrm{.}5$

Interest $(2\mathrm{.}5)$

Profit before taxation $5\mathrm{.}0$

Corporation tax $(1\mathrm{.}0)$

Net profit after taxation $4\mathrm{.}0$

Dividend $(2\mathrm{.}0)$

Retained profit $2\mathrm{.}0$

$*$includes exceptional item $($loss$)$ of P$0\mathrm{.}5$m

Statement of financial position as at $31$ December $2023$

P$$ million

Non$-$current assets $12\mathrm{.}2$

Freehold land and premises $($cost $12\mathrm{.}0$m $1\mathrm{.}0$m Dep$)11\mathrm{.}0$

Equipment $($cost $2\mathrm{.}0$m $0\mathrm{.}8$m Dep$)1\mathrm{.}2$

Current Assets $8\mathrm{.}5$

Inventory at cost $7\mathrm{.}0$

Debtors $1\mathrm{.}5$

Total Assets $20\mathrm{.}7$

Equity and Liabilities $9\mathrm{.}2$

$50$thebe Ordinary share capital $4\mathrm{.}0$

Reserves $5\mathrm{.}2$

Non$-$current liabilities $2\mathrm{.}5$

$10\%$ bonds $2\mathrm{.}5$

Current liabilities $9\mathrm{.}0$

Trade creditors $6\mathrm{.}0$

Dividends $2\mathrm{.}0$

Corporation tax $1\mathrm{.}0$

TOTAL EQUITY & LIABILITIES $20\mathrm{.}7$

Q P $-$ A S R $-001|$ R e v $001$ E f f D a t e : $09-0$

$8-2023$

Page $3$ of $3$

The accountant for Easy$-$Rent has estimated the future free cash flows of the company as follows:

$20232024202520262027-2032$

P$$m $4\mathrm{.}44\mathrm{.}64\mathrm{.}95\mathrm{.}05\mathrm{.}4$ pa

Shareholders require a return of $10$ per cent after taxes.

Easy$-$Rent has recently had a professional valuer estimate the current re$-$sale value of its assets. His estimates are

as follows:

P$$m

Freehold land and premises $20\mathrm{.}0$

Equipment $0\mathrm{.}9$

Stock $6\mathrm{.}0$

The current re$-$sale values of the remaining assets are considered to be in line with their book values. A company

which is listed on the Stock Exchange and which is in the same business as Easy$-$Rent has a price earnings ratio of

$11$ times.

Assume a rate of corporation tax of $30$ per cent.

Required:

$($a$)$ Calculate the value of a share in Easy$-$Rent using the following methods:

$($i$)$ Net asset value

$($ii$)$ Price earnings ratio

$($iii$)$ Discounted cash flow $(30$ marks$)$

$($b$)$ What are the main problems associated with each of these three different methods? $(10$ marks$)$

$($T