QUESTION THREE a) Asempaye Ltd is a prosperous private company, whose owners are also the directors. The directors have decided to sell their business and have begun a search for organizations interested in the purchase. They have asked for your assessment of the price per ordinary share a purchaser might be expected to offer. Relevant information is as follows: 153 Statement of financial position as at 31 December 2010 Non-current assets GHCM GHCM Land and buildings 800 Plant and machinery 450 Motor vehicles 55 Patent 2 1.307 Current assets Inventory 250 Receivables 125 Cash 8 383 Current liabilities Payables 180 Taxation 50 230 Net current asset Loan secured on property (400) 1.060 Ordinary shares (300,000) 300 Reserves 1,060 Profits after tax and interest but before dividend over the past 5 years were as follows: Year GHCM 2004 2005 78 2006 87 2007 95 2008 The annual dividend has been CH445 million for the last six years. The company's five years plan forecast an after tax profit of CH4100 million for the next12 months with an increase of 4% a year over reach of the next 4 years. 760 80 100 % % 9.0 8.5 8.0 1999 10.6 9.3 As part of their preparations to sell the company, the directors have had their current assets revalued by an independent expert with the following results: CHC Land and buildings 1,075 Plant and machinery 480 Motor vehicles 45 The dividend yields and the P/E ratios of three quoted companies in the same industry as Asempaye over the last years have been as follows: Asaaba Ltd Pasaah Ltd Arthur Ltd D/Y P/E D/Y P/E D/Y P/E % 2010 12.0 11.0 13.0 10.0 12.0 8.5 12.6 9.5 1998 12.0 8.5 8.0 12.4 9.0 Averages 12.0 8.33 10.3 8.5 12.7 9.5 Large companies in the Industry apply an after-tax cost of capital of about 18% to acquisition proposal when the investment is not backed by tangible assets, as opposed to a rare of 14% on the net tangible assets. Your assessment of the net cash flow which will accrue to a purchasing company, allowing for taxation and capital expenditure for a target five year period is as follows: Year Cash flow GHC 1 120 2 120 3 140 4 70 5 120 Required: Use the information provided to suggest six (6) Valuations which prospective purchasers might make. (Assume that the risk associated with lack of marketability of Asempaye Ltd is 20%) (22 marks)