TOOs board is considering taking over another company called LIP as they both operate in the FMCG industry. TOOs shareholders require a return of 14% and the companies PE Ratio is 14:1

The key highlights from LIPs latest statement of financial position are as follows:

m Property, Plant & Equipment 800 Working Capital 50 Long Term Debt 200 25p Ordinary Share Capital 80 Reserves 570

LIP has recently declared profit after tax of 200m, earnings have risen year on year for the previous five years by 2%, the cum-div share price is 5.80 and it has paid an ordinary dividend of 0.80p per share. LIPs shareholders require a return of 18 % and the PE Ratio is 10:1.

TOO has the following key financial highlights and information:

m Profit after tax 300 Combined after tax earnings with LIP including a 3% growth rate for the foreseeable future 550 LIP would dispose certain non-current assets with a book value 100 LIP could dispose the non-current assets with a historic of 100m in two years for 200

b. Given the above information write a report making a valuation of LIP using at least four valuation methods including a recommendation and how they could finance the acquisition.