Moorer Browne Limited Merger Valuation Name Here Name of Institution Date Class Name Date Report on Potential Investment by Merger Companies May 6, 2012 Prepared for Board of Director Moorer Browne Limited Prepared by XXXXX Financial Advisor (Signature) More than often, mergers and acquisitions remain as viable strategy used by companies worldwide to maximise dominant growth…
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It is more decisive to get the investors with high values to merge with Moorer Browne Limited especially those, with markets that are widely distributed to allow for maximisation of profits and growth in the highly competitive market trend expected in 2012 (Frankel, 2005). Below are calculations, based on the possible range of possible valuations, upon which prospective purchasers might offer on the ordinary shares of the company based on different methods of share valuation. Net Asset Value (Market Values) Net asset value =Market value of asset- Market value of liabilities Outstanding shares (Pinto et. al, 2010) Market value of assets from balance sheet 2011 = 96.7+12+8+66 +6.5 = 189.2m Market value of liabilities from balance sheet 2011= 54.5 + 30 = 84.5m Number of outstanding preference shares = 8,500,000/1=8,500,000 Number of outstanding ordinary shares= 25,000,000/0.50 =50,000,000 Total outstanding shares = 50,000,000+8,500,000 = 58,500,000 Net asset value =189,200,000 – 84,500,000 = 104,700,000 58,500,000 58,500,000 Net asset value = 1.79 Profit/ Earning Basis P/E basis=Market Value per Share (Pinto et. al, 2010) Earnings per Share (EPS) Earnings per share= Net Income Available to Common Shareholders Number of Common Shares Outstanding (Pinto et. al, 2010) Earnings per share = 9.0 Market Price per Share = Net Income - Preferred Dividends Number of Shares of Common Shares Outstanding (Pinto et. al, 2010) = 27.0 – 0.6 =0.528 50 P/E basis = 0.528/ 9.0 = 0.0587 Dividend Yield with No Growth Dividend yield= Do (Pinto et. al, 2010) r Do is the current dividend = 18,500,000/50,000,000 = 0.37 r- is the rate of return= 14% Dividend yield= 0.37 0.14 Dividend yield = 2.643 Dividend Growth Valuation Model g-is the constant growth rate = 5.25% Dividend growth valuation model = D0 (1+K)+ D1 (1+K)+ ------- Dr(1+K) (1+r) 0 (1+r)1 (r-K) (Pinto et. al, 2010) Do is the current dividend = 18,500,000/50,000,000 = 0.37 r- is the rate of return= 14% Year Dividend Expected 1/1+.14 Dividend Year 1D0 0.37 0.37 1.1400 0.4218 2D1 0.37 + (0.37* 0.0525) 0.389425 1.2995 0.5061 3D2 0.389425 + (0.389425*0.0525) 0.409870 1.5209 0.6234 4D3 0.409870 + (0.409870*0.0525) 0.431388 1.8281 1.7489 3.3002 D4 0.431388+(0.431388*0.0525) 0.454036 Dividend growth= 3.3002 + 0.454036 (1+.14)4 Dividend growth = 3.3002 + (0.454036 *1.7489) 3.3002 + 0.7941=4.0943 Discounted Cash Flow Year Cashflow (1+ 0.14)t Discounted cash flow value 2012 ?21.0 million 0.8772 18.4212 million 2013 ?20.5 million 0.7695 15.77475 million 2014 ?27.5 million 0.6575 18.08125 million 2015 ?26.3 million 0.5718 15.03834 million 2016 ?31.4 million 0.4972 15.61208 million 2017 ?34.5 million 0.4323 14.91435 million 2018 ?27.5 million 0.3759 10.33725 million 2019 ?26.4 million 0.3269 8.63016 million 2020 ?31.3 million 0.2843 8.89859 million 2021 ?35.2 million 0.2434 8.56768 million 134.27565 million Valuation Based on Super Profits Super Profits = Actual Profits - Normal Profits Normal Profits = Capital Invested X Normal rate of return/100 (Lonergan, 2003). Normal Profits = 25,000,000* 11.5/100 = 2,875,000 Super Profits = 27,000,000 - 2,875,000 = 24,125,000 Use multiple of 4.25 to value goodwill Goodwill super
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