Lmt plc is a growing company specialising in making accessories for mobile phones and tablets. The company is currently all$-$equity financed with $2$ million ordinary shares in issue. The existing shareholders are mainly family members and friends. The directors of Lmt plc need to raise finance to fund a new factory and are considering a range of options including flotation and venture capital. Future growth is anticipated to be following:

Earnings next year $=0\mathrm{.}25$ M $,$ expected to grow at $7\%$ pa;

Dividend next year $=0\mathrm{.}14$ M $,$ expected to grow at $4\%$ pa$.$

Flotation.

Q plc$,$ a listed company with similar business activities to Lmt plc has a P$/$E ratio of $9,$ an equity beta of $1\mathrm{.}2$ and gearing, measured as Debt to Equity of $1$:$2.$ Lmt plc is expected to grow faster than Q plc$,$ at least in the short term.

If flotation is approved, then the issue share price would be set at a $15\%$ discount to fair value. The directors of Lmt plc do not believe that an asset valuation is of much use here.

Venture Capital.

The directors of Lmt plc have been in discussion with $5$Ts$,$ a listed venture capital company. As well as contributing equity, $5$Ts would seek to spread the risk of their investment by also investing in the form of $4-$year $5\%$ secured redeemable bonds and also convertible preference shares. The risk adjusted return on similar bonds has been estimated at $6\%.$

Corporation tax is currently $30\%.$

Which one of the following statements, concerning the usefulness of asset based methods of business valuation, is correct?

Question $6$Select one:

a$.$Replacement cost normally represents the minimum price which should be accepted for the sale of a business as a going concern

b$.$Break$-$up value should provide a measure of the maximum amount that any purchaser should pay for the business

c$.$Book value will normally be a meaningless figure as it will be based on historical costs

d$.$Asset based methods give consideration to non statement of financial position intangible assets such as a highly skilled workforce and a strong management team