Section B - Case 2: AeroDynamics PLC
Scenario: AeroDynamics PLC, an aerospace manufacturer, is evaluating the acquisition of a target company, HeliParts. HeliParts has just paid an annual dividend of $0.40 per share. Historical dividend data shows that 4 years ago, the dividend was $0.32 per share. HeliParts' cost of equity is estimated at 12%. The company has 5 million ordinary shares in issue. HeliParts also has $10 million of 8% irredeemable bonds trading at $105 per $100 nominal value. The corporate tax rate is 25%.
Calculate the historical annual dividend growth rate for HeliParts. (Express your answer as a percentage to two decimal places, e.g., 5.25).
ACCA · Question 24 · Business Valuations
Section B - Case 2: AeroDynamics PLC
Scenario: AeroDynamics PLC, an aerospace manufacturer, is evaluating the acquisition of a target company, HeliParts. HeliParts has just paid an annual dividend of $0.40 per share. Historical dividend data shows that 4 years ago, the dividend was $0.32 per share. HeliParts' cost of equity is estimated at 12%. The company has 5 million ordinary shares in issue. HeliParts also has $10 million of 8% irredeemable bonds trading at $105 per $100 nominal value. The corporate tax rate is 25%.
AeroDynamics is also considering an asset-based valuation for HeliParts.
Which TWO of the following are valid limitations of using the Net Book Value (NBV) basis for an asset-based valuation?
Answer options:
NBV ignores the value of internally generated intangible assets like goodwill and brand reputation.
NBV is based on historical cost and may not reflect the current market value of the assets.
NBV assumes the company will be liquidated immediately.
NBV overstates the value of the company by including future expected cash flows.
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