A competitor has also offered to acquire operations of Aroma Corporation. On the other hand a group of investors still believe that company has potential to grow due to its old customer base which are quite satisfied by the offered services and are ready to inject more debt in the company. Analyst to CFO has gathered below information to be used in strategic Planning. Cost of Debt = 18% Tax Rate = 25% For coming 5 Years there isn't any chance of growth in Market share and profit but after 5 years a constant growth of 9 % is expected. Future Cashflow for a period of 5 Years: Years Cash Flows 1. 106 121 3 100 4 112 5- Terminal 100 CEO has advised to have a concrete information about company's value and a suggestion of using various range of company's value is given by Finance director. Required: Explain the silent features of below mentioned these 3 methods. 1. Asset Based Valuation 2. Earning Based Valuation 3. Cashflow Based Valuation
A competitor has also offered to acquire operations of Aroma Corporation. On the other hand a group of investors still believe that company has potential to grow due to its old customer base which are quite satisfied by the offered services and are ready to inject more debt in the company. Analyst to CFO has gathered below information to be used in strategic Planning. Cost of Debt = 18% Tax Rate = 25% For coming 5 Years there isn't any chance of growth in Market share and profit but after 5 years a constant growth of 9 % is expected. Future Cashflow for a period of 5 Years: Years Cash Flows 1. 106 121 3 100 4 112 5- Terminal 100 CEO has advised to have a concrete information about company's value and a suggestion of using various range of company's value is given by Finance director. Required: Explain the silent features of below mentioned these 3 methods. 1. Asset Based Valuation 2. Earning Based Valuation 3. Cashflow Based Valuation
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A competitor has also offered to acquire operations of Aroma Corporation.
On the other hand a group of investors still believe that company has potential to grow due to its
old customer base which are quite satisfied by the offered services and are ready to inject more debt
in the company.
Analyst to CFO has gathered below information to be used in strategic Planning.
Cost of Debt = 18%
Tax Rate = 25%
For coming 5 Years there isn't any chance of growth in Market share and profit but after 5 years a constant
growth of 9 % is expected.
Future Cashflow for a period of 5 Years:
Years
Cash Flows
1
106
2
121
3
100
4
112
5- Terminal
100
CEO has advised to have a concrete information about company's value and a suggestion of using various
range of company's value is given by Finance director.
Required:
Explain the silent features of below mentioned these 3 methods.
1. Asset Based Valuation
2. Earning Based Valuation
3. Cashflow Based Valuation
Transcribed Image Text:Q No.2: Statement of Financial position for Aroma Corporation is given below for the period ending Dec
31 2020.
Assets
Liabilities & Equity
cash
32
accounts payable
211
bank account
16
accruals
63
prepaid assets
inventories
salaries payable
121
54
350
Total current liabilities
328
Total current assets
long term bonds
569
190
Total fixed liabilities
190
land
179
189
prefered stock
retained earnings
common equity
building
187
96
103
Total fixed assets
366
218
Total Equity
417
total assets
935
Total liabilities & Equity
935
*All values given in '000 $.
Other Information:
PAT = 320
EBIDTA=428
Rf- 5%
Rm= 15 %
Geared Beta of Aroma's Industry is 1.3
(Preferred stocks are considered as debt financing)
Profit Margin and Market Share of Aroma Corporation are constantly declining for last 3 years and
various options are being discussed at board level for getting into a new venture with a fresh Brand
Name and better product Quality and shut down the operations in existing name.
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