Reference no: EM132745878
Question: Lazenby plc has been set up to exploit on opportunity to import a new product from overseas. It has issued two million ordinary shares of par value $0.25, sold at a 25 per cent premium. Its projected accounts show the following annual operating figures:
Sales revenue $500,000
Operating costs ($300,000)
(after depreciation of £50,000)
Operating profit $200,000
Taxation at 30% ($60,000)
Profit after tax $140,000
Notes: (i) Shareholders require a return of 10 per cent p.a.
(ii) Replacement investment is financed out of depreciation provisions and is fully tax-allowable.
(iii) 2 per cent of sales should be written off as bad debts.
(iv) Bad debt write-offs are 50 per cent tax-allowable.
Required: Value each share in Lazen by:
(a) Assuming perpetual life.
(b) Over a 10-year horizon.
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