GROUP PROJECT: SEMESTER $1-2024$

INSTRUCTIONS

Groups of between $5$&$7$ organized by students amongst themselves.

Assignment needs to be typed and electronically submitted to the relevant lecturer.

Use Calibri font, size $11$ with $1,5$ spacing and left & right margins justified.

No names will be added after the assignment has been electronically submitted.

Unit $3$: Business Buyout

Nieuwenhuizen and Nieman $(2019)$ explain that another route to business ownership is through business buyout. A process of acquiring a controlling interest in a company, through an outright purchase of the company or through the purchase of a controlling equity interest. The underlying principle is that the acquirer believes that the target company's assets are undervalued.

QUESTION

$[40]$

Mr$.$ Denis Strauss is a SME entrepreneur from Okahandja. $3$ months ago, he was presented with the opportunity to take over the Freezing business of Mr$.$ Grant Van Wyk in Rehoboth. Though excited about the opportunity, Mr$.$ Strauss is currently hesitant of taking it up since he struggles to establish its real value. An acquittance referred him to your office for professional advice.

Consider the following figures from the Adjusted Balance Sheet and Condensed Income Statement of Grant Freezers, in order to answer questions $($a$)$ to $($g$)$ below

$[$Determine the Value of the Business for Buy$-$out purposes$]$:

$\backslash$table$[[$Capital$,680000],[$Accumulated profits,$370800],[$Long term loan,$200000]]$

Additional information:

$1$ The salary foregone is $N$$$90000.$

$2$ Risky investment of $30\%$

$3$ Growth wanted is $45\%$

$\backslash$table$[[$Year$,2019,2018,2017,2016],[$Net Profits,$200910,180210,150510,90400]]$

$12$

$3\mathrm{.}1$ Calculate the following:

$(3\mathrm{.}1\mathrm{.}1)$ Adjustable Tangible Net Worth

$(3\mathrm{.}1\mathrm{.}2)$ Opportunity Cost

$(3)$

$(3\mathrm{.}1\mathrm{.}3)$ Growth Rate $\%$ of Net Profit

$(3\mathrm{.}1\mathrm{.}4)$ Estimated Net Earnings for the next year

$(3\mathrm{.}1\mathrm{.}5)$ Extra Earning Power

$(3)$

$(3\mathrm{.}1\mathrm{.}6)$ Goodwill

$(3)$

$(3\mathrm{.}1\mathrm{.}7)$ Value of the Business

$(3)$

$3\mathrm{.}2$ List and discuss $5$ non$-$monetary factors that may impact the final business purchase price of the business $(10)$

$3\mathrm{.}3$ After working out the value of the business, what is your professional advice to Mr Strauss? $(5)$