You have been asked to carry out a valuation of Dixy plc, a listed company on the main London market. At the last year-end Dixys summarised statement of financial position and the trading history are shown below:

Additional Information: The impressive average annual growth in Delas earnings and dividends over the last few years is likely to persist. You have obtained an independent valuation of Dixys fixed assets at 320m. You believe that Dixy has overstated the value of inventory by 30m and one-quarter of its debtors are likely to be uncollectable. There have been no new issues of shares in the past 7 years. Dixy has 1,000 million shares in issue. 7 Continued Overleaf

REQUIRED: a) Calculate the Dixys value per share using the net asset value (NAV) method.

b) Briefly explain why balance sheet net asset value generally have limited usefulness for estimating the value of a firm. Describe two circumstances where balance sheet net asset values become very important for corporate valuation. (Maximum Word Count: 200)

c) Calculate the value one of Dixys shares using the dividend valuation model assuming the dividend of 19p has just been paid and the next dividend is due in one year. The cost of equity is 12%.

d) What is the prospective price to earnings ratio (P/E ratio) given the share price in part (c)?

Table 1 Dixy, 31 1st December 2021 Summarised Statement of Financial Position \begin{tabular}{lrr} & & m \\ \hline Fixed Assets & 280 \\ Current Assets & \\ Inventory & 150 & \\ Account Receivables & 75 & 310 \\ Cash at Bank & & -380 \\ Liabilities & -50 \\ Creditors: trade creditors falling due within one year & \\ Creditors falling due after more than one year & & 160 \\ Shareholders' funds (Net Assets) & & \end{tabular} Table 2 Dixy's Trading History \begin{tabular}{ccc} Year End & EarningsPershare(pence) & DividendPershare(pence) \\ \hline 2021 & 30 & 19 \\ 2020 & 28 & 18.5 \\ 2019 & 24 & 17.5 \\ 2018 & 20 & 16.5 \\ 2017 & 19 & 16 \\ 2016 & 18 & 15 \\ 2015 & 17 & 14 \end{tabular} Table 1 Dixy, 31 1st December 2021 Summarised Statement of Financial Position \begin{tabular}{lrr} & & m \\ \hline Fixed Assets & 280 \\ Current Assets & \\ Inventory & 150 & \\ Account Receivables & 75 & 310 \\ Cash at Bank & & -380 \\ Liabilities & -50 \\ Creditors: trade creditors falling due within one year & \\ Creditors falling due after more than one year & & 160 \\ Shareholders' funds (Net Assets) & & \end{tabular} Table 2 Dixy's Trading History \begin{tabular}{ccc} Year End & EarningsPershare(pence) & DividendPershare(pence) \\ \hline 2021 & 30 & 19 \\ 2020 & 28 & 18.5 \\ 2019 & 24 & 17.5 \\ 2018 & 20 & 16.5 \\ 2017 & 19 & 16 \\ 2016 & 18 & 15 \\ 2015 & 17 & 14 \end{tabular}