ProblemsThe average of listed businesses in the industry for dividend yield is 7 per cent and
the average of their price/earnings ratios is 14. The effective basic rate of income tax
is 10 per cent.
(a) Estimate the value of a share in Alcantage Ltd on the basis of as many methods as
you can from the information provided.
(b) If you were a shareholder in Alcantage Ltd, how, in general terms, would you
assess whatever offer you may receive from the national business?16.5 Finn Engineering Ltd is an unlisted business. Ten members of the Finn family own
most of the shares, but there are six senior managers who have very small holdings.
The most recent annual report contained accounting statements that can be out-
lined as follows:
Income statement for the year ended 31 March this year
£000
Sales revenue 107,068
Operating profit 14,615
Interest payable (1,300)
Profit before taxation 13,315
Taxation (4,272)
9,043A dividend of £3,500,000 was paid in respect of the year to 31 March.Balance sheet as at 31 March this year
£000
Non-current assets 58,357
Current assets 37,241
Total assets 95,598Equity
Ordinary shares of £1 each 10,000
Reserves 38,383
48,383
Non-current liabilities
10% term loan repayable in full in nine years’ time 13,000
Current liabilities 34,215
Total equity and liabilities 95,598This year’s results are regarded as fairly typical of those over recent years, and
they are in line with expectations for the foreseeable future.
Average figures for Stock Exchange listed businesses in the engineering sector are:
Gross dividend yield 3.30%
Dividend cover 2.45
Cost of equity 11.52%
(a) Estimate the value of an ordinary share in Finn Engineering Ltd in threeways.
Clearly explain the basis of your estimations, and justify any assumptions that you
have made. ‘