You are required to advise the management the maximum price which they can pay per share of Fine Toys Ltd. If a discount factor of 15% is considered appropriate
Temby Ltd is in the business of playing sports equipment. The company operates from Thailand. To globalize its operations Temby has identified Fine Toys ltd, an Indian company, as a potential takeover candidate. After due diligence of Fine toys ltd, the following is available-
(a)Cashflow
|
Year |
10 |
9 |
8 |
7 |
6 |
5 |
4 |
3 |
2 |
1 |
|
Fine toys ltd |
24 |
21 |
15 |
16 |
15 |
12 |
10 |
8 |
6 |
3 |
|
Temby Ltd |
108 |
70 |
55 |
60 |
52 |
44 |
32 |
30 |
20 |
16 |
(b) The Net worth of Fine toys ltd (Rs Lakhs) after certain adjustments suggested by the due diligence team reads under-
|
Tangible Inventories Receivables |
750 145 75 |
970 |
|
Less: Creditors Bank loans |
165 250 |
(415) |
|
Represented by equity shares of Rs 1000 each |
|
555 |
Talks for the turnover have crystallized on the following-
- Temby ltd will not be able to use Machinery worth Rs 75 lakhs which will be disposed off by them subsequent to takeover.
- The investors and Receivables are agreed for takeover at values of Rs 100 and Rs 50 respectively, which is the price they will realize on disposal.
- The liabilities of Fine toys ltd will be discharged in full on takeover along with an employee settlement of Rs 90 lakhs for the employees who are not interested in continuing under the new management.
- Temby ltd will invest a sum of Rs 150 lakhs for upgrading the Plant of Fine toys ltd on takeover. A further sum of Rs 50 lakhs will also be incurred in the second year to revamp the machines shop floor of Fine toys ltd.
- The anticipated Cashflow (Rs crore) post takeover are as follows:
|
Years |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|
Cashflow |
18 |
24 |
36 |
44 |
60 |
80 |
96 |
100 |
140 |
200 |
You are required to advise the management the maximum price which they can pay per share of Fine Toys Ltd. If a discount factor of 15% is considered appropriate
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