Canadian Adventurers Ltd., an unlisted company, provides equipment and guides for out-trippers, resource companies and emergency crews into the Canadian wildness. The 500 shares at an initial price of $750 each were divided equally between the bush pilot and a former forest ranger who operated the company. A year after the company was incorporated, when business was beginning to break-even, and several long-term contracts had just been signed, one of the owners died. The other owner would like to purchase the shares from the estate to continue the business. What is the most appropriate share valuation method?

Question

Quizplus · Accepted Answer

Given the company's situation—breaking even, signing long-term contracts, and not being publicly listed—the Free cash flow method is most appropriate for valuing the shares. This method considers the company's future cash flows, which is relevant for a growing company with new contracts. Other methods like Dividend yield and Price/earnings rely on data not applicable or not available for an unlisted, early-stage company. The Balance sheet method doesn't account for future growth potential, and the original share value doesn't reflect the company's current or future state.