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ACCA Strategic Professional · Advanced Financial Management · Valuation for acquisitions and mergers

Zeta plc has the following book values: non-current assets $12.0m, inventory $3.0m, receivables $4.0m, cash $1.0m, and total liabilities $8.0m. The fair value of non-current assets is $15.0m, and $0.5m of inventory is obsolete and worthless. Other items are at fair value. Using the net realisable (fair value) asset-based method on a going-concern basis, what is the equity value?

The equity value is $14.5m. Restate assets to fair value: non-current assets $15.0m, inventory $2.5m after removing obsolete stock, receivables $4.0m and cash $1.0m, totalling $22.5m. Deducting liabilities of $8.0m leaves net assets of $14.5m.

  1. A$15.0m
  2. B$12.0m
  3. C$14.5mCorrect
  4. D$16.0m

Explanation

Adjusted assets = 15.0 + (3.0 - 0.5) + 4.0 + 1.0 = 22.5m. Deducting liabilities of 8.0m gives 14.5m. Ignoring the inventory write-down gives 15.0m, which is wrong because the obsolete inventory has no value.

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