ACCA Strategic Professional · Advanced Financial Management · Valuation for acquisitions and mergers
Omega plc is to be valued on a break-up basis. Fair value of assets in an orderly sale is $30.0m. Forced-sale proceeds would be 80% of this for non-current assets of $20.0m and 90% for other assets of $10.0m. Liabilities of $14.0m must be settled in full. Liquidation costs are $1.5m. Which equity value arises under a forced break-up basis?
The equity value is $9.5m. Forced-sale proceeds are $16.0m from non-current assets plus $9.0m from other assets, totalling $25.0m. Deduct liabilities of $14.0m and liquidation costs of $1.5m to leave $9.5m for shareholders.
- A$9.5mCorrect
- B$11.0m
- C$14.5m
- D$16.0m
Explanation
Forced proceeds = 20.0 x 0.8 + 10.0 x 0.9 = 16.0 + 9.0 = 25.0m. Less liabilities 14.0m gives 11.0m, then less liquidation costs 1.5m gives 9.5m. The 11.0m option omits the liquidation costs.
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