- June 1, 2021 at 1:19 pm #622473Faizahmad1009Member
- Topics: 33
- Replies: 20
Please help me understand these two problems.
1) If the Dividend Growth Model shows a Market Share Price of $4 and there are 10m shares issued with a nominal value of $1. The Market Value of the Company using DGM will be (10m x $4) = $40m.
While SOFP shows total Equity of $30m consists of $10m in Share Capital and $20m in Reserves.
Is it true that since the Market Value of the Company is $30m in total and anybody consider buying or taking over the Company has to pay $30m BUT Dividend Growth Model is showing Market Value of Company of $40m.
Then, anybody considering buying the Company has to pay $30m or $40m? Is it possible that the Company Shareholders can ask even higher price than $40m for the Company?
2) Net Asset Method is simply calculated as Total Assets – Total Liabilities which is actually Equity of the company where we can calculate the company worth by simply looking at company SOFP BUT if we are considering buying a company having equity worth of $100m (lets say) where Retained Earnings consist of $15m; If we bought the company do we have to pay total $100m or $85m (less Retained Earnings because company can pay all its RE to its shareholders in the last year of company before ceasing to exist?)
Thank you for your time
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