The managing directors of Kings PLC are considering what value to place on Dragon PLC, a company that they are planning to take-over soon. Kings’ share price is currently £4.15and the company’s earnings per share stand at 29p.  Kings PLC weighted average cost of capital is 12%. The board estimates that annual after-tax synergy benefits resulting from the takeover will be £5.25m, that Dragon’s distributable earnings will grow at an annual rate of 2.5%. That duplication will allow the sale of the £31m of assets, net of corporate tax (currently standing at 21%), in a year’s time. Information relating to Dragon PLC: Financial Statement of Dragon PLC                                                                           £m                                 £m Non-current assets                                            273 Current assets                                                     56 Total assets                                                                                             329 Equity Ordinary Shares (£1)                                                                              147 Reserves                                                                                                   64 Total equity                                                                                             211 7% bonds                                                                                                    72 Current liabilities                                                                                          46 Total liabilities                                                                                          118     Statement of Profit or Loss extracts                                                                                                              £m Profit before interest and tax                                                                64.0 Interest payments                                                                                   6.5 Profit before tax                                                                                    57.5 Taxation                                                                                               15.1 Distributable earnings                                                                          42.4     Other financial market information: Current ex-div share price£2.35 Latest dividend payment                                                         14p Past four years dividends payment                                          9p, 10.5p, 11p, 12p Dragon’s equity beta                                                                1.05 Treasury bills yield                                                                   5.5% Market risk premium                                                                6%     Given the above information calculate the value of Dragon PLC using the following valuation methods: a) Price/earnings ratio  b) Discounted cash flow method c)Dividend valuation method                            d)Drawing relevant academic literature on the mergers and takeovers, critically discuss the problems associated with using the above valuation techniques. Based on your opinion, which of the above valuation techniques would you recommend with economic justifications to the board of Kings PLC to pursue in this acquisition.