MZUMBE UNIVERSITY
Main Campus
Assignment:
TRAIN provides a tuition service for professional students. This includes courses of lectures provided on
their own premises and provision of study material for home study. Most of the lecturers are qualified
professionals with many years' experience in both their profession and tuition. Study materials are written
and word processed in-house, but sent out to external reviewers and printers.
The business was started 15 years ago, and now employs around 40 full-time lecturers, 10 authors and 20
support staff. Freelance/part-time lecturers and authors are employed from time to time in times of peak
demand.
The shareholders of TRAIN mainly comprise the original founders of the business who are now aged, and
would like to retire and realise their investment. In order to arrive at an estimate of what they believe the
business to be worth, they have provided a summary financial statistics for the most recent financial year
are as follows:
Issued shares
Net asset values
Earnings per share
Dividend per share
Debt: equity ratio
Share price
Expected rate of growth in earnings/dividends
TZS40,000,000
TZS72,000,000
TZS350
TZS200
1:7
TZS3,620
9% pa
Additional Notes:
1. The net assets of TRAIN are the net book values of tangible non-current assets plus net working
capital. However:
 A recent valuation of the buildings was TZS15,000,000 above book value.
 Inventory includes past editions of textbooks which have a realisable value of TZS1,000,000
below their cost.
 Due to a dispute with one of their clients, an additional allowance for bad debts of
TZS7,500,000 could prudently be made.
2. Growth rates should be assumed to be constant per annum; TRAIN’s earnings growth rate
estimate was based on expected growth in sales adjusted by normal profit margins.
3. TRAIN uses a discount rate of 15% to appraise its investments, and has done for many years.
Required:
(a) Compute the value for the business of TRAIN, using the assets based method. (5Marks)
(b) Explain the strengths and weaknesses of the assets-based method and comment on their suitability for
valuing TRAIN’s business. (5Marks)