Page 280 - AFM Integrated Workbook STUDENT S18-J19

Chapter 13

Question 2

Chassagne Co is considering making a bid for Butler Co, a rival company.

The following information should be used to value Butler Co.

Statement of profit or loss for the most recent accounting period

$m
Revenue 285.1
Cost of sales (120.9)
–––––
Gross profit 164.2
Operating expenses (inc. depreciation $12.3m) (66.9)
–––––
Profit from operations 97.3
Finance costs (10.0)
–––––
Profit before tax 87.3
Taxation (21.6)
–––––
Profit after tax 65.7
–––––
Other information:

 selling prices are expected to rise at 3% per year for the next 3 years and
then stay constant thereafter.

 sales volumes are expected to rise at 5% per year for the next 3 years
and then stay constant thereafter.

 assume that cost of sales is a completely variable cost, and that other
operating expenses (including depreciation) are expected to stay
constant.

 Butler Co invested $15m in non-current assets and $2m in working capital
last year. These annual amounts are expected to stay constant in future.

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