The board of directors of Predator Co$,$ a listed company, is considering making an offer to purchase Target Co$,$ a private limited company in the same industry. If Target Co is purchased it is proposed to continue operating the company as a going concern in the same line of business.

T$5$ is five years ago and T$1$ is the most recent year.

PREDIATOR CO PAT $($$m$)$:

T$514\mathrm{.}30$

T$415\mathrm{.}56$

T$316\mathrm{.}93$

T$218\mathrm{.}42$

T$120\mathrm{.}04$

PREDIATOR CO Dividend $($$m$)$:

T$59\mathrm{.}01$

T$49\mathrm{.}80$

T$310\mathrm{.}67$

T$211\mathrm{.}60$

T$112\mathrm{.}62$

TARGET CO PAT$($$m$)$

T$5143$

T$4162$

T$3151$

T$2175$

T$1183$

TARGET CO $-$DIVIDEND $($$m$)$

T$585\mathrm{.}0$

T$493\mathrm{.}5$

T$393\mathrm{.}5$

T$2102\mathrm{.}8$

T$1113\mathrm{.}1$

$$ Predator Co $50$ cents ordinary shares AND Target Co$,25$ cents ordinary shares.

$$ Ordinary share capital value of Predator Co$.$ is $$35$m and that of Target Co$.$ is $$160$m$.$

$$ Target$$s shares are owned by a small number of private individuals. Its managing director who receives an annual salary of $$120,000$ dominates the company. This is $$40,000$ more than the average salary received by managing directors of similar companies. The managing director would be replaced if Predator purchases Target.

$$ The ordinary shares of Predator are currently trading at $430$ cents ex$-$div. A suitable cost of equity for Target has been estimated at $15\%.$ Both companies are subject to corporation tax at $33\%.$

$$ Include for a $20\%$ downward adjustment in the P$/$E of predator that you will use for the Target to account for the risk that Target Co$.$ may have due to its private operations. $($ie$.$ P$/$E of Target $=0\mathrm{.}8$ X P$/$E of Predator Co$.)$

Questions

a$)$ Estimate the value of Target Co$.$ using the dividend valuation model.

b$)$ Estimate the value of Target Co$.$ using P$/$E method. Note: You shall start with the P$/$E of Predator and bootstrap the Target Co$.$

NOTE: REQUESTING EXPERTS TO NOT USE AI OR CHATGPT, PLEASE. THANKYOU.