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A ltd intends to acquire a controlling interest in B ltd , a company incorporated four years ago , by purchase of its shares .The statement of...

a) Work out the share valuation of 'B' ltd using the following methods :
Net assets' valuation ;
Discounted cash flow valuation;
b) What factors are usually considered while valuation of shares of an unquoted company?
A ltd intends to acquire a controlling interest in B ltd , a company incorporated four years ago , by purchase of its shares .The statement of financial position of B ltd as of June 30 , 2009 is as follows: 'B' Limited Statement of Financial Position As at June 30, 2009 Assets Property , plant and equipment 368,480 Investments 27,000 Deferred costs 17,000 Current Assets Stock in trade 153,410 Trade debts 90,370 Cash and bank balance 27,100 Total Assets 683,360 Share Capital and Reserves Share capital (ordinary shares of Rs.10 each) 215,000 Reserves 173,630 Deferred Taxation 23,140 Current Liabilities Creditors, accrued and other liabilities 251,340 Provision for taxation 20,250 Total 683,360 The historical performance of 'B' limited has been as follows Sales Profit after Tax Year ended June 30,2007 350,000 35,670 Year ended June 30,2008 400,652 42,150 Year ended June 30,2009 465,540 47,080 Following forecast is available from 'B' Limited's long term plan (LTP) Projected Income Statement 2010 2011 2012 2013 2014
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Sales 652,000 728,310 793,000 846,750 895,500 Less:Cost of Sales Direct Mat 421,500 463,500 502,700 543,900 590,400 Direct Lab 61,400 72,250 80,300 86,300 89,000 Depreciation 26,500 31,000 32,300 32,700 29,200 Repairs n Maintenace 17,750 19,750 20,300 19,500 14,250 others 20,250 22,560 26,800 18,900 16,550 Gross Profit 104,500 119,250 130,600 14,450 156,100 Less:Admin exp 48,450 54,300 62,510 68,800 73,550 Less:Sell n Dist exp 8,450 8,050 10,550 10,200 12.050 Other Income 13000 12,500 14,000 13,000 11000 Profit before tax 60,600 69,400 71,540 78,450 81,500 Additional Information : 'B' ltd has insured that the accuracy while preparing the projected income statement for the period 2010 to 2014 .However, management assumes zero growth rates for annual cash flows beyond 2014 being prudent. Since its incorporation, 'B' ltd has been following the policy of interim dividend during the year. In the year ended 2009, 'B' ltd has paid Rs. 18 million dividend to its shareholders> The company expects the growth in dividend @ 8% in the foreseeable future> 'B' ltd falls in the 35% tax bracket. However, the company believes that in future years' taxable income would be 85% of accounting income due to temporary differences. Taxes of a particular year are paid in the next year by the company. Fixed capital expenditure has been estimated at Rs. 15 million in 2010 and they are expected to increase by 10% per annum till 2014 after that it will remain stable. 'B' ltd has decided that investment in working capital is required to be rationalized in future, stock-in-trade at the end of each year is to be maintained equivalent to two months; sales value of that particular year. Trade debts and creditors will increase at the rate 5% per annum . The fair value of few non-current assets are higher than their book values as under Book values Fair vale Land 66,000 202,000 Plant & mach 294,860 316,940 Investments 27,000 42,000 Required rate of return of the company is 12% Required:
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