Deltacom Ltd. is a telecommunications consultancy company based in Ghana that trades globally. It was established five (5) years ago. The ten (10) founding shareholders own 10% of the issued equity capital each and are also Executive Directors of the company. The shareholders are considering a flotation of Deltacom Ltd. on the Ghana Stock Exchange and have started discussing the process and value for the company with Financial Advisors. The ten founding shareholders and many of the company’s employees are technical experts in their field but have little idea how entities such as theirs are valued. At a meeting with the shareholders, the Chief Executive Officer of the Company believes that as the company has assets with a book value of GH¢22,000 million and a surplus of more than GH¢10,000 million, the company’s value, when listed should be at least GH¢32,000 million. The company’s financial statements for the past three years are summarized below.

Income statement for the years ended 31^st December,

2018 (GH¢m)	2019 (GH¢m)	2020 (GH¢m)
Sales	13,300	16,200	19,000
Cost of sales	(9,000)	(11,500)	(14,400)
Gross Profit	4,300	4,700	4,600
Selling and general expenses	(1,400)	(1,600)	(1,700)
Interest payable	(500)	(700)	(800)
Profit before tax	2,400	2,400	2,100
Taxation	(840)	(700)	(800)
Net profit after tax	1,560	1,700	1,300

Statement of Financial Position as at 31^st December

2018 (GH¢m)	2019 (GH¢m)	2020 (GH¢m)
Non-Current Asset	8,500	10,000	12,000
Current Asset Inventory	3,600	4,500	5,400
Receivables	2,800	3,500	4,500
Cash	100	100	100
Total Assets	15,000	18,100	22,000

Equity and Liabilities.

Stated Capital (GH¢100/share)	500	500	500
Income Surplus	7,800	9,360	10,725
Shareholders fund	8,300	9,860	11,225
Long term loans	2,000	3,500	5,000
Current liabilities
Bank loans	1,400	500	587
Trade payables	2,500	3,400	4,400
Taxation	800	840	788
15,000	18,100	22,000

Additional notes relating to the income statement for the year ended 31^st December 2020 and the statement of financial statement as at 31^st December 2020 are as follows:

1. Two percent of the receivables are expected to default.
2. Ten percent of the inventory is considered to be obsolete.
3. Machinery has an estimated realizable value of GH¢500 million less than its book value and buildings GH¢2,500 million more than the written down value.
4. The land has never been revalued. Land costing GH¢50 million was purchased 10 years ago and a further plot at a cost of GH¢300 million six years ago. The value of industrial land has increased by an average of 15% per annum during the last ten years.

(e). The free cash flow of Deltacom limited for the next five years is estimated below:

GH¢ Million

2021 1,400.

2022 1,800

2023 1,950

2024 2,100

2025 2,200

The free cash flow is expected to grow at 5% after 2025.

(f). You are required to visit the website of the Ghana stock exchange and any other relevant websites to solicit for any key financial ratios and rates which may be relevant to your work

REQUIRED:

Acting as an external consultant to Deltacom, prepare a report for the shareholders that uses a variety of methods to value the firm. In particular, the report should include/address the following features:

1. A brief introduction that explains the purpose of the report and why you have been contracted.
2. A brief discussion on the assessment of the accuracy of the Chief Executive’s assessment of the company’s value.
3. Explanation of each of the methods used in estimating the value of the company including the advantages and disadvantages of the methods.
4. A summary of the methods used and the value obtained including an appendix indicating the calculations you did in arriving at the values and any assumptions you made.
5. Matters that should be specified in the prospectus that Deltacom will issue to the public as a requirement for listing on the Ghana Stock exchange.
6. Conclusion.
7. Evidence of reading, grammar, spelling, and good presentation and referencing.

Answer rating: 100% (QA)

10 Introduction Deltacom Ltd is a telecommunications consultancy company based in Ghana It was established five years ago by ten shareholders who own 10 of the issued equity capital each The company i... View the full answer