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Calculate the value of rexted plc

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Beco plc is considering launching a takeover bid for Rexted plc, both companies being manufacturers of white goods (fridges, washing machines, etc). Both companies are listed on the Stock Exchange. As the Treasurer of Beco plc, you have obtained the following information about Rexted plc, which is about to pay its annual dividend: Number of ordinary shares 12 million Ordinary share price (Ex Div) £2.80 Earnings per share 35p Proposed dividend payout ratio 62% Dividend per share one year ago 21.4p Dividend per share two years ago 20p Equity beta 1.3 You have also established that the average P/E (price/earnings) ratio for the sector is 8.5 and that the company's cost of equity has been estimated at 13%.

Required:

(a) Calculate the value of Rexted plc using the following methods:

i. Price/earnings method

ii. Dividend growth model

(b) Compare the values you calculated in (a) to the current market value of Rexted plc. What are the implications for your Board in terms of the offer they will now need to make for Rexted plc. Furthermore, explain in what circumstances an Assets based valuation may be useful.

Reference no: EM133205734

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