ProblemsBalance sheet as at 31 December last year
£m
Non-current assets 50.67
Current assets 121.55
Total assets 172.22Equity
Issued share capital (ordinary shares of 5p) 2.00
Share premium account 6.00
Revenue reserves 105.42
113.42
Floating rate term loan 30.00
Current liabilities 28.80
Total equity and liabilities 172.22Last year Howard Pope Ltd made a profit for the year of £15.3 million and paid a
dividend of £5.0 million. In recent years the directors have adopted a policy of increas-
ing dividends by approximately 10 per cent each year.
The cost of equity of listed businesses in the same industry as Howard Pope Ltd,
which are similarly capital geared, is estimated at 13 per cent. The average price/earn-
ings ratio of such businesses is 15.0.
The directors of PR Industries plc have not yet decided what proportion of the
share capital of Howard Pope Ltd they wish their business to acquire, and you have
been asked to consider the possibility of acquiring either a minority or a majority
stake.
Estimate the value of a share in Howard Pope Ltd. Would your view be different
according to whether PR Industries plc was acquiring a controlling or a minority
interest?16.4 Alcantage Ltd owns a chain of dry-cleaning shops in South Wales. A UK-wide dry-
cleaning business is considering making an offer to the shareholders of Alcantage Ltd
with the idea of obtaining all the ordinary shares.
The draft accounts of Alcantage Ltd for the year that has just ended can be sum-
marised as follows:
Income statement for last year
£m
Sales revenue 24.7
Operating profit 8.4
Interest (0.5)
Profit before taxation 7.9
Taxation (2.6)
Profit for the year 5.3The business paid a dividend of £1.5 million during last year.‘