Requirements

Using the information provided, prepare a report for Rogerss board which:

(1) Calculates the value of one share in Moog based on each of these methods:

(i)net asset basis (historic cost).

(ii)net asset basis (revalued).

(iii)price/earnings ratio.

(iv)dividend yield.

(v) present value (at 28 February 2018) of future cash flows assuming disposal after 4 years. (16 marks)

(2) Explains the advantages and disadvantages of using each of the five valuation methods in (1). (9 marks)

Total: 25 marks

Portfolio Rogers You are employed by Rogers UK plc (Rogers), a very large printing firm with retail outlets across the UK. Its board is considering making an offer to buy 100% of the shares of Moog Ltd, a competitor of Rogers in the south east of England. Moog's financial year end is 28 February and its most recent financial statements are summarised below: Moog Income Statement for the year ended 28 February 2018 m Revenue 17.3 Profit before interest and tax 5.9 Interest (0.3) Profit before taxation 5.6 Corporation tax at 28% (1.6) Profit after taxation 4.0 Dividends declared 1.1 cost Moog Balance Sheet at 28 February 2018 mmm Non-current assets Freehold land and buildings (original 4.1m) 3.5 Machinery (original cost 8.8m) 5.3 8.8 Current assets Inventories 3.0 Receivables 0.5 Cash and bank 2.8 6.3 Current liabilities Trade payables 3.5 Dividends 1.1 Taxation 1.6 (6.2) 0.1 8.9 (3.0) Non-current liabilities 10% debentures (redeemable 2022) 5.9 Equity Ordinary shares of 1 each 2.1 Retained earnings 3.8 5.9 Equity Ordinary shares of 1 each Retained earnings 3.8 5.9 2.1 Additional information Moog's management had some of the company's assets independently revalued in March 2018. Those values are shown below: m Freehold land and buildings 8.3 Machinery 4.1 Inventories 3.1 The average pricelearnings ratio for listed businesses in the printing industry is 9 and the average dividend yield (dividend divided by share price) is 6% pa. Moog's finance department has estimated that the company's pre-tax net cash inflows (after interest) for the next four trading years ending 28 February will be: m Year to 2019 Year to 2020 Year to 2021 Year to 2022 4.6 4.3 5.2 5.7 Rogers's board estimates that in four years' time, i.e. 28 February 2022, it could, if necessary, dispose of Moog for an amount equal to four times its after-tax cash flow for the year to 28 February 2022. The cost of equity of businesses in the printing industry, taking account of the industry average level of capital gearing, is 14% pa. Assume that the corporation tax rate is 28% pa