Question:

1. Calculate the

(1) Payback period,

(2) Accounting rate of return (Using initial investment approach),

(3) Net present value,

(4) Internal rate of return

For both town centre and out-of-town shopping centre options.

2.

(1) Calculate the current earnings per share of MYs Salon,

(2) Calculate the current share price of MYs Salon.

3.

(1) Calculate the cost of MYs Salons proposed bid for L&L Salon.

(2) Calculate earnings per share for MYs Salon following the successful takeover of L&L Salon.

MY's Salon is a UK corporation operating in the nail salon industry. The company has over 100 nail salons which mainly are in London and South UK. The most recent summarised accounts for MY's Salon are given below. Income statement for the year ended 31 July 2022. Balance Sheets for the year ended as of 31 July 2022. INote: Hrice earnings racio to Dia or ivir 5 saion is 15. In 2023, MY's Salon plans to open 10 nail salons in midland of UK (Coventry, Birmingham and Leicester). Board of directors is considering two type of location options including town centre and out-of-town shopping centre. Both options cost 1M pounds for setting up 10 new nail salons. However, MY's salon is going to choose only one type of location. The setting up cost will be depreciated over five years on a straight-line basis. There is no residual value by the end of year 5 . The best estimate of revenues and costs arising from the operation of both options are as follows: Note: Annual fixed costs have included depreciation The board of directors agree that a suitable cost of capital is 10%. Inflation and taxation can be ignored for the purpose of project evaluation. Alternative Strategy The board of directors of MY's Salon have also considered acquiring L\&L salon, which operates in the hair salon industry in South of the United Kingdom. MY's Salon offers a share for share exchange. MY's Salon anticipates that the acquisition would result in a larger business in the industry being created and generate a present value of 3m per year. The founding members of L\&L salon are invited to become the members of the board of directors of the combined company. The terms of the offer are 4 MY's Salon share for every 5 L\&L Salon shares. The profit after tax of L\&L Salon in 2022 is 4M and currently has 30 million ordinary shares in issue. MY's Salon is a UK corporation operating in the nail salon industry. The company has over 100 nail salons which mainly are in London and South UK. The most recent summarised accounts for MY's Salon are given below. Income statement for the year ended 31 July 2022. Balance Sheets for the year ended as of 31 July 2022. INote: Hrice earnings racio to Dia or ivir 5 saion is 15. In 2023, MY's Salon plans to open 10 nail salons in midland of UK (Coventry, Birmingham and Leicester). Board of directors is considering two type of location options including town centre and out-of-town shopping centre. Both options cost 1M pounds for setting up 10 new nail salons. However, MY's salon is going to choose only one type of location. The setting up cost will be depreciated over five years on a straight-line basis. There is no residual value by the end of year 5 . The best estimate of revenues and costs arising from the operation of both options are as follows: Note: Annual fixed costs have included depreciation The board of directors agree that a suitable cost of capital is 10%. Inflation and taxation can be ignored for the purpose of project evaluation. Alternative Strategy The board of directors of MY's Salon have also considered acquiring L\&L salon, which operates in the hair salon industry in South of the United Kingdom. MY's Salon offers a share for share exchange. MY's Salon anticipates that the acquisition would result in a larger business in the industry being created and generate a present value of 3m per year. The founding members of L\&L salon are invited to become the members of the board of directors of the combined company. The terms of the offer are 4 MY's Salon share for every 5 L\&L Salon shares. The profit after tax of L\&L Salon in 2022 is 4M and currently has 30 million ordinary shares in issue