Dagadu  Ltd  is  an  unlisted  private  company,  which  deals  in  computer  and  other  ICT equipment.  On 1st March, 2012, a shareholder-director, Mr Kusi, informed you that he was contemplating disposing of his shares.  The regulations of the company require him to offer his shares first to his fellow shareholders.  If none offers a reasonable price, he may seek an outside purchaser.

 

You have been given the financial statements of the company as follows: Dagadu Ltd

Income Statements for year to 31st December

Sales	2010 GHC000 10,800	2011 GHC000 12,000	Projected 2012 GHC000 13,200
Cost of sales	8,820	9,900	10,683
Gross profit	1,980	2,100	2,517
Other trading costs	750	900	990
Net trading costs	1,230	1,200	1,527
Interest payables:
15% Debentures	-	144	144
Bank overdraft	75	0	0
Net profit before tax	1,155	1,056	1,383
Taxation	600	540	720
Net profit for the year	555	516	663
Dividends:
10% Cumulative Preference shares	60	60	60
Ordinary shares	240	300	300
Retained earnings for the year	255	156	303

 

The statements of financial position as at the end of corresponding years and projected statement for

2012 are as follows:

Projected

Additional information:

(1)       Changes in the stated capital over the last three years are as follows: (i)Issued for cash at 1/1/2009:

200,000 10% Cumulative Preference Shares issued at GHC3 fully paid and 250,000

ordinary shares issued at GHC3 fully paid.

 

(ii)       Issued for cash at 1/1/2010:

150,000 ordinary shares issued at GHC3 fully paid.

 

(iii)      Bonus issue at 1/1/2011:

100,000 ordinary shares issued at GHC3 per share, fully paid by capitalising from Capital Surplus Account and ranking for dividend in 2011 and thereafter.

 

(2)       The ordinary shares carry one vote each at general meetings.

The preference shares do not carry votes unless their dividends are in arrears when each share carries one vote.

Statistics selected from similar listed company include the following: 

Earning per share                                GHC0.60

Market capitalisation                          GHC2,700,000

No. of shares                                                  450,000

Dividend payout ratio                                       80%

 

Assume that investment in unlisted entity is 20% more risky than investment in quoted securities.

 

Required:

(i)        Estimate the range of prices per share that Mr Kusi can reasonably expect to realise from the sale of his 50,000 ordinary shares to his fellow shareholders using the following methods:

i.         Dividend Yield

ii.       Earnings Yield

iii.       Net Assets                                                                                        

(ii)       Estimate the highest price per share that he can reasonably obtain from an outside purchaser.

Answer rating: 100% (QA)

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