Question 1

1. According to the principles of shareholder value analysis, the value of a business is driven by seven value drivers. Name the value drivers and discuss how each driver affects the value of a business and the wealth of shareholders. Support your discussion with appropriate examples (maximum 500 words).

(Total: 20 Marks)

[Your Answer]

2. Recent financial information relating to Melan plc is as follows;

	000
Profit after tax	2,500
Dividends	1,800

Statement of Financial Position Information
	000
Assets
Non-current assets
Property, plant and equipment	7,500
Intangible assets	700
	8,200
Current assets
Inventories	2,410
Trade receivables	1,000
Cash	170
	3,580
Total assets	11,780
Equity and liabilities
Equity
Ordinary shares of 0.50	3,000
Retained earnings	3,990
	6,990
Non-current liabilities
Borrowing bank loan	3,100
Current liabilities
Trade payables	1,500
Taxation	190
	1,690
Total equity and liabilities	11,780

Melan plc has cost of equity of 10%.

1. Calculate the value of an ordinary share of Melan plc using the net asset basis of valuation (historical basis). (6 Marks)
2. Calculate the value of an ordinary share of Melan plc using the dividend valuation method if;

1. The current level of dividend is expected to remain unchanged for the foreseeable future.
2. The current level of dividend is expected to remain unchanged for three years and then to grow at the rate of 2% per annum in perpetuity. (7 Marks)

3. Comment on the valuation methods you have used and the values you have calculated in parts (a) and (b). (7 Marks)

(Total: 20 Marks)

[Your Answer]