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The following is a condensed balance sheet of Dooby (Pty.) Ltd.: R Ordinary shares capital 60 000 Retained income 20 000 80 000 Total assets
The following is a condensed balance sheet of Dooby (Pty.) Ltd.: R Ordinary shares capital 60 000 Retained income 20 000 80 000 Total assets 80 000 Profits over the last five years have been R20 000, R25 000, R30 000, R24 000 and R26 000. A fair rate of return is regarded as 25% after tax. Required: 1. Value the ordinary share using the earnings basis. Expected annual profits are considered to be the average of the last five years. 2. Value the ordinary shares using the earnings basis. In estimating future annual profits, the profits for the last five years should be weighted as follows: Year 1 x 1 Year 2 x 2 Year 3 x 1 Year 4 x 2 Year 5 x 2
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