iquidation based valuation Tang mining is considering the acquisition of Zang Mining at a cash price of P6,000,000. The primary motivation for Tang’s purchase of Zang is for a special piece of drilling equipment that it believes will generate an after-tax cash flow of P2,000,000 per year during the next 5 years. Zang Mining has liabilities of P9,000,000 and Tang estimates that it can sell the remaining asset P6,500,000 . Tang will use a 15% percent of the cost of capital for evaluating the acquisition. Based on this information, what is the net value of the special drilling equipment?
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Liquidation based valuation
Tang mining is considering the acquisition of Zang Mining at a cash price of P6,000,000. The
primary motivation for Tang’s purchase of Zang is for a special piece of drilling equipment that it
believes will generate an after-tax cash flow of P2,000,000 per year during the next 5 years. Zang
Mining has liabilities of P9,000,000 and Tang estimates that it can sell the remaining asset
P6,500,000 . Tang will use a 15% percent of the cost of capital for evaluating the acquisition. Based
on this information, what is the net value of the special drilling equipment?
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