Reference no: EM133005285
Question - River ltd is a listed manufacturing company, is considering a takeover bid for Rimuka ltd ,a smaller unlisted company in the same industry. Rimuka ltd has been making losses for the past 2 years, so it is considered that an asset based valuation should be used to value the business.
Extracts from Rimuka ltd financial statistics $000
Plant, property equipment (Ppe note 1) 1,207
Current assets564
Total 1,771
Equity and liabilities
Share capital $1100
Retained earnings 553
Bonds 600
Current liabilities 518
Total 1,771
The non- current assets comprise specialised manufacturing equipment. To replace the equipment would cost $1,500 000 but if ribbon were to be closed down, the assets would sell for no more $1,000 000.
Receivables contain an amount of $120 000 from a large customer which has gone into liquidation. A contractor for the same customer, included in work in progress (inventory) at a value of $30 000 will now have to be scrapped.
Required - Calculate the expected valuation of Rimuka ltd, from the perspective of River ltd, explain and justify your figures.