ACCA Applied Skills · Financial Management · Models for the valuation of shares
Helix Co has non-current assets with a book value of $8.0m, expected to sell for $6.5m, and inventory and receivables of $4.0m, expected to realise $3.2m. Liabilities are $5.0m, and liquidation costs are expected to be $0.5m. There are 2 million shares. What is the break-up (liquidation) value per share?
The break-up value is $2.10 per share. Realisable assets of $9.7m less liabilities of $5.0m and liquidation costs of $0.5m leave $4.2m for shareholders, and dividing by 2 million shares gives $2.10.
- A$2.10Correct
- B$2.35
- C$2.00
- D$3.50
Explanation
Realisable assets = 6.5 + 3.2 = $9.7m. Less liabilities $5.0m and costs $0.5m = $4.2m. Divided by 2m shares = $2.10. $2.35 omits the liquidation costs, and $3.50 uses book values less liabilities and no costs ((12-5)/2).
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