es 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. 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: Yrs. Cash Flows 1 106
*All values given in ‘000 $.
Other Information:
PAT = 320
EBIDTA=428
Rf= 5%
Rm= 15 %
Geared Beta of Aroma’s Industry is 1.3
(
Profit Margin and Market Share of Aroma Corporation are constantly declining for last 3 years and various options are being discussed at board level for getting into a new venture with a fresh Brand Name and better product Quality and shut down the operations in existing name.
A competitor has also offered to acquire operations of Aroma Corporation.
On the other hand, a group of investors still believe that company has potential to grow due to its old customer base which are quite satisfied by the offered services and are ready to inject more debt in the company.
Analyst to CFO has gathered below information to be used in strategic Planning.
Cost of Debt = 18%
Tax Rate = 25%
For coming 5 Years there isn’t any chance of growth in Market share and profit but after 5 years a constant growth of 9 % is expected.
Future Cashflow for a period of 5 Years:
|
Yrs. |
|
|
1 |
106 |
|
2 |
121 |
|
3 |
100 |
|
4 |
112 |
|
5- Terminal |
100 |
CEO has advised to have a concrete information about company’s value and a suggestion of using various range of company’s value is given by Finance director.
Required:
Asset Based Valuation = 3,21,000$
Earning Based Valuation = 17,77,778$
Cashflow Based Valuation = 3,39,073$
You are expected to explain silent features of these 3 methods.
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