Question 4a ii
GWW Co is a listed company which is seen as a potential target for acquisition by financial analysts. The value of the company has therefore been a matter of public debate in recent weeks and the following financial information is available:
| year | 2009 | 2010 | 2011 | 2012 |
| profit after tax ($m) | 8.5 | 8.9 | 9.7 | 10.1 |
| total dividends ($m) | 5.0 | 5.2 | 5.6 | 6.0 |
Statement of financial position information for 2012
| $m | $m | |
| non-current assets | 91.0 | |
| current assets | ||
| inventory | 3.8 | |
| trade receivables | 4.5 | 8.3 |
| ----- | ----- | |
| total assets | 99.3 | |
| ----- | ||
| equity finance | ||
| ordinary shares | 20.0 | |
| reserves | 47.2 | 67.2 |
| ----- | ||
| non-current liabilities | ||
| 8% bonds | 25.0 | |
| current liabilities | 7.1 | |
| ----- | ||
| total liabilities | 99.3 | |
| ----- |
The shares of GWW Co have a nominal (par) value of 50c per share and a market value of $4•00 per share. The cost of equity of the company is 9% per year. The business sector of GWW Co has an average price/earnings ratio of 17 times. The 8% bonds are redeemable at nominal (par) value of $100 per bond in seven years’ time and the before-tax cost of debt of GWW Co is 6% per year.
The expected net realisable values of the non-current assets and the inventory are $86•0m and $4•2m, respectively. In the event of liquidation, only 80% of the trade receivables are expected to be collectible.
Required:
Calculate the value of GWW Co using the net asset value (liquidation basis)