重要提示: 请勿将账号共享给其他人使用,违者账号将被封禁!
查看《购买须知》>>>
找答案首页 > 全部分类 > 财会类考试
搜题
网友您好, 请在下方输入框内输入要搜索的题目:
搜题
题目内容 (请给出正确答案)
[主观题]

Moonstar Co is a property development company which is planning to undertake a $200 millio

n commercial property development. Moonstar Co has had some difficulties over the last few years, with some developments not generating the expected returns and the company has at times struggled to pay its finance costs. As a result Moonstar Co’s credit rating has been lowered, affecting the terms it can obtain for bank finance. Although Moonstar Co is listed on its local stock exchange, 75% of the share capital is held by members of the family who founded the company. The family members who are shareholders do not wish to subscribe for a rights issue and are unwilling to dilute their control over the company by authorising a new issue of equity shares. Moonstar Co’s board is therefore considering other methods of financing the development, which the directors believe will generate higher returns than other recent investments, as the country where Moonstar Co is based appears to be emerging from recession.

Securitisation proposals

One of the non-executive directors of Moonstar Co has proposed that it should raise funds by means of a securitisation process, transferring the rights to the rental income from the commercial property development to a special purpose vehicle. Her proposals assume that the leases will generate an income of 11% per annum to Moonstar Co over a ten-year period. She proposes that Moonstar Co should use 90% of the value of the investment for a collateralised loan obligation which should be structured as follows:

– 60% of the collateral value to support a tranche of A-rated floating rate loan notes offering investors LIBOR plus 150 basis points

– 15% of the collateral value to support a tranche of B-rated fixed rate loan notes offering investors 12%

– 15% of the collateral value to support a tranche of C-rated fixed rate loan notes offering investors 13%

– 10% of the collateral value to support a tranche as subordinated certificates, with the return being the excess of receipts over payments from the securitisation process

The non-executive director believes that there will be sufficient demand for all tranches of the loan notes from investors. Investors will expect that the income stream from the development to be low risk, as they will expect the property market to improve with the recession coming to an end and enough potential lessees to be attracted by the new development.

The non-executive director predicts that there would be annual costs of $200,000 in administering the loan. She acknowledges that there would be interest rate risks associated with the proposal, and proposes a fixed for variable interest rate swap on the A-rated floating rate notes, exchanging LIBOR for 9·5%.

However the finance director believes that the prediction of the income from the development that the non-executive director has made is over-optimistic. He believes that it is most likely that the total value of the rental income will be 5% lower than the non-executive director has forecast. He believes that there is some risk that the returns could be so low as to jeopardise the income for the C-rated fixed rate loan note holders.

Islamic finance

Moonstar Co’s chief executive has wondered whether Sukuk finance would be a better way of funding the development than the securitisation.

Moonstar Co’s chairman has pointed out that a major bank in the country where Moonstar Co is located has begun to offer a range of Islamic financial products. The chairman has suggested that a Mudaraba contract would be the most appropriate method of providing the funds required for the investment.

Required:

(a) Calculate the amounts in $ which each of the tranches can expect to receive from the securitisation arrangement proposed by the non-executive director and discuss how the variability in rental income affects the returns from the securitisation. (11 marks)

(b) Discuss the benefits and risks for Moonstar Co associated with the securitisation arrangement that the non-executive director has proposed. (6 marks)

(c) (i) Discuss the suitability of Sukuk finance to fund the investment, including an assessment of its appeal to potential investors. (4 marks)

(ii) Discuss whether a Mudaraba contract would be an appropriate method of financing the investment and discuss why the bank may have concerns about providing finance by this method. (4 marks)

查看答案
更多“Moonstar Co is a property development company which is planning to undertake a $200 millio”相关的问题

第1题

You have been appointed as deputy Chief Financial Officer to a large multinational pharmac

eutical company with trading interests in 24 countries in sub-Saharan Africa, South America and the Indian sub-continent. Your company also has important trading links with the United States, Malaysia and Singapore. There have been a number of issues arising in the previous six months which have impacted upon the company’s business interests.

(i) Following an investigation you discover that commissions were paid to a senior official in one country to ensure that the local drug licensing agency concerned facilitated the acceptance of one of your principal revenue earning drugs for use within its national health service.

(ii) You have discovered that an agent of your firm, aware that the licensing agreement might be forthcoming,

purchased several call option contracts on your company’s equity.

(iii) A senior member of the firm’s treasury team has been taking substantial positions in currency futures in order to protect the risk of loss on the translation of dollar assets into the domestic currency. Over the last 12 months significant profits have been made but the trades do not appear to have been properly authorised. You discover that a long position in 50, $250,000 contracts is currently held but over the last four weeks the dollar has depreciated by 10% and all the signs are that it will depreciate considerably more over the next two months.

(iv) One drug company has managed to copy a novel drug that you have just released for the treatment of various forms of skin cancer. You have patent protection in the country concerned but your company has not been able to initiate proceedings through the local courts. Contacts with the trade officials at your embassy in the country concerned suggest that the government has made sure that the proceedings have not been allowed to proceed.

The company’s chief financial officer has asked you to look into these issues and, with respect to (iv), any World Trade

Organisation (WTO) agreements that might be relevant, and to advise her on how the company should proceed in each case.

Required:

Prepare a memorandum advising the Chief Financial Officer on the issues involved and recommending how she should, in each case and in the circumstances, proceed.

点击查看答案

第2题

1 Paxis plc will soon announce a takeover bid for Wragger plc, a company in the same indus

try. The initial bid will be

an all share bid of four Paxis shares for every five Wragger shares.

The most recent annual data relating to the two companies are shown below:

The takeover is expected to result in cost savings in advertising and distribution, reducing the operating costs

(including depreciation) of Paxis from 76% of sales to 70% of sales. The growth rate of the combined company is

expected to be 6% per year for four years, and 5% per year thereafter. Wragger’s debt obligations will be taken over

by Paxis. The corporate tax rate is expected to remain at 30%.

Sales and costs relevant to the decision may be assumed to be in cash terms.

Required:

(a) Using free cash flow analysis for each individual company and the potential combined company, estimate

how much synergy is expected to be created from the takeover. State clearly any assumptions that you make.

Note: The weighted average cost of capital of the combined company may be assumed to be the market weighted

average of the current costs of capital of the individual companies, weighted by the current market value of debt and

equity of the combined company, with the equity of Wragger adjusted for the effect of the bid price. (20 marks)

点击查看答案

第3题

2 A proposal has been put to the board of directors of Semer plc that the company should i

ncrease its capital gearing

to at least 50%, in order to reduce the company’s cost of capital and increase its market value.

The managing director of Semer is not convinced by the logic of the proposal, or the accuracy of the calculations, but

is unable to explain the reasons for his reservations.

A summary of the proposal and its implications is shown below.

Proposal to increase the capital gearing of Semer plc

The company’s current weighted average cost of capital is estimated to be 10·6%. If the proportion of debt is

increased to 50% of total capital, by the repurchase of ordinary shares at their current market value, the cost of capital

may be reduced to 9·9%. A reduced cost of capital means that the value of the company will increase which will be

welcomed by our shareholders. Calculations supporting the above proposal are shown below:

(ii) The current price of Semer’s ordinary shares is 410 pence.

(iii) The market price of one 8% debenture 2010 is £112.

(iv) The market return is 10·5% and the risk free rate 4·0%.

(v) Semer’s equity beta is 1·2.

(vi) Semer currently pays £15 million in dividends.

(vii) The corporate tax rate is 30%.

(viii) The company currently generates a free cash flow of £60 million per year, which is expected to increase by

approximately 3% per year.

Required:

(a) What, if any, are the mistakes in the proposal? Correcting for any mistakes produce revised estimates of the

company’s current cost of capital and current value. Brief explanation of the reasons for any revisions should

be included. (15 marks)

点击查看答案

第4题

1 Sleepon Hotels plc owns a successful chain of hotels. The company is considering diversi

fying its activities through the construction of a theme park near London. The theme park would have a mixture of family activities and adventure rides. Sleepon has just spent £230,000 on market research into the theme park, and is encouraged by the findings.

The theme park is expected to attract an average of 15,000 visitors per day for at least four years, after which major new investment would be required in order to maintain demand. The price of admission to the theme park is expected to be £18 per adult and £10 per child. 60% of visitors are forecast to be children. In addition to admission revenues,

it is expected that the average visitor will spend £8 on food and drinks, (of which 30% is profit), and £5 on gifts and souvenirs, (of which 40% is profit). The park would open for 360 days per year.

All costs and receipts (excluding maintenance and construction costs and the realisable value) are shown at current prices; the company expects all costs and receipts to rise by 3% per year from current values.

The theme park would cost a total of £400 million and could be constructed and working in one year’s time. Half of the £400 million would be payable immediately, and half in one year’s time. In addition working capital of £50 million will be required from the end of year one. The after tax realisable value of fixed assets is expected to be between £250 million and £300 million after four years of operation.

Maintenance costs (excluding labour) are expected to be £15 million in the first year of operation, increasing by £4 million per year thereafter. Annual insurance costs are £2 million, and the company would apportion £2·5 million per year to the theme park from existing overheads. The theme park would require 1,500 staff costing a total of £40 million per annum (at current prices). Sleepon will use the existing advertising campaigns for its hotels to also advertise the theme park. This will save approximately £2 million per year in advertising expenses.

As Sleepon has no previous experience of theme park management, it has investigated the current risk and financial structure of the closest UK theme park competitor, Thrillall plc. Details are summarised below.

Thrillall plc, summarised balance sheet

Other information:

(i) Sleepon has access to a £450 million Eurosterling loan at 7·5% fixed rate to provide the necessary finance for the theme park.

(ii) £250 million of the investment will attract 25% per year capital allowances on a reducing balance basis.

(iii) Corporate tax is at a rate of 30%.

(iv) The average stock market return is 10% and the risk free rate 3·5%.

(v) Sleepon’s current weighted average cost of capital is 9%.

(vi) Sleepon’s market weighted gearing if the theme park project is undertaken is estimated to be 61·4% equity,

38·6% debt.

(vii) Sleepon’s equity beta is 0·70.

(viii) The current share price of Sleepon is 148 pence, and of Thrillall 386 pence.

(ix) Thrillall’s medium and long term debt comprises long term bonds with a par value of £100 and current market price of £93.

(x) Thrillall’s equity beta is 1·45.

Required:

Prepare a report analysing whether or not Sleepon should undertake the investment in the theme park. Your report should include a discussion of what other information would be useful to Sleepon in making the investment decision. All relevant calculations must be included in the report or as an appendix to it. State clearly any assumptions that you make.

(Approximately 28 marks are available for calculations and 12 for discussion)

(40 marks)

点击查看答案

第5题

Furlion Co manufactures heavy agricultural equipment and machinery which can be used in di

fficult farming conditions. Furlion Co’s chief executive has been investigating a significant opportunity in the country of Naswa, where Furlion Co has not previously sold any products. The government of Naswa has been undertaking a major land reclamation programme and Furlion Co’s equipment is particularly suitable for use on the reclaimed land. Because of the costs and other problems involved in transporting its products, Furlion Co’s chief executive proposes that Furlion Co should establish a plant for manufacturing machinery in Naswa. He knows that the Naswan government is keen to encourage the development of sustainable businesses within the country.

Initial calculations suggest that the proposed investment in Naswa would have a negative net present value of $1·01 million. However, Furlion Co’s chief executive believes that there may be opportunities for greater cash flows in future if the Naswan government expands its land reclamation programme. The government at present is struggling to fund expansion of the programme out of its own resources and is looking for other funding. If the Naswan government obtains this funding, the chief executive has forecast that the increased demand for Furlion Co’s products would justify $15 million additional expenditure at the site of the factory in three years’ time. The expected net present value for this expansion is currently estimated to be $0.

It can be assumed that all costs and revenues include inflation. The relevant cost of capital is 12% and the risk free rate is 4%. The chief executive has estimated the likely volatility of cash flows at a standard deviation of 30%.

One of Furlion Co’s non-executive directors has read about possible changes in interest rates and wonders how these might affect the investment appraisal.

Required:

(a) Assess, showing all relevant calculations, whether Furlion Co should proceed with the significant opportunity. Discuss the assumptions made and other factors which will affect the decision of whether to establish a plant in Naswa. The Black Scholes pricing model may be used, where appropriate. (16 marks)

(b) Explain what is meant by an option’s rho and discuss the impact of changes in interest rates on the appraisal of the investment. (5 marks)

(c) Discuss the possibility of the Naswan government obtaining funding for further land reclamation from the World Bank, referring specifically to the International Development Association. (4 marks)

点击查看答案

第6题

Staple Group is one of Barland’s biggest media groups. It consists of four divisions, orga

nised as follows:

– Staple National – the national newspaper, the Daily Staple. This division’s revenues and operating profits have decreased for the last two years.

– Staple Local – a portfolio of 18 local and regional newspapers. This division’s operating profits have fallen for the last five years and operating profits and cash flows are forecast to be negative in the next financial year. Other newspaper groups with local titles have also reported significant falls in profitability recently.

– Staple View – a package of digital channels showing sporting events and programmes for a family audience. Staple Group’s board has been pleased with this division’s recent performance, but it believes that the division will only be able to sustain a growth rate of 4% in operating profits and cash flows unless it can buy the rights to show more major sporting events. Over the last year, Staple View’s biggest competitor in this sector has acquired two smaller digital broadcasters.

– Staple Investor – established from a business which was acquired three years ago, this division offers services for investors including research, publications, training events and conferences. The division gained a number of new clients over the last year and has thus shown good growth in revenues and operating profits.

Some of Staple Group’s institutional investors have expressed concern about the fall in profitability of the two newspaper divisions.

The following summarised data relates to the group’s last accounting year. The % changes in pre-tax profits and revenues are changes in the most recent figures compared with the previous year.

Staple Group’s board regards the Daily Staple as a central element of the group’s future. The directors are currently considering a number of investment plans, including the development of digital platforms for the Daily Staple. The finance director has costed the investment programme at $150 million. The board would prefer to fund the investment programme by disposing parts or all of one of the other divisions. The following information is available to help assess the value of each division:

– One of Staple Group’s competitors, Postway Co, has contacted Staple Group’s directors asking if they would be interested in selling 15 of the local and regional newspapers for $60 million. Staple Group’s finance director believes this offer is low and wishes to use the net assets valuation method to evaluate a minimum price for the Staple Local division.

– Staple Group’s finance director believes that a valuation using free cash flows would provide a fair estimate of the value of the Staple View division. Over the last year, investment in additional non-current assets for the Staple View division has been $12·5 million and the incremental working capital investment has been $6·2 million. These investment levels will have to increase at 4% annually in order to support the expected sustainable increases in operating profit and cash flow.

– Staple Group’s finance director believes that the valuation of the Staple Investor division needs to reflect the potential it derives from the expertise and experience of its staff. The finance director has calculated a value of $118·5 million for this division, based on the earnings made last year but also allowing for the additional earnings which he believes that the expert staff in the division will be able to generate in future years.

Assume a risk-adjusted, all-equity financed, cost of capital of 12% and a tax rate of 30%. Goodwill should be ignored in any calculations.

Staple Group’s finance and human resources directors are looking at the staffing of the two newspaper divisions. The finance director proposes dismissing most staff who have worked for the group for less than two years, two years’ employment being when staff would be entitled to enhanced statutory employment protection. The finance director also proposes a redundancy programme for longer-serving staff, selecting for redundancy employees who have complained particularly strongly about recent changes in working conditions. There is a commitment in Staple Group’s annual report to treat employees fairly, communicate with them regularly and enhance employees’ performance by structured development.

Required:

(a) Evaluate the options for disposing of parts of Staple Group, using the financial information to assess possible disposal prices. The evaluation should include a discussion of the benefits and drawbacks to Staple Group from disposing of parts of the Staple Group. (19 marks)

(b) Discuss the significance of the finance director’s proposals for reduction in staff costs for Staple Group’s relationships with its shareholders and employees and discuss the ethical implications of the proposals. (6 marks)

点击查看答案

第7题

Section B – TWO questions ONLY to be attemptedLouieed Co Louieed Co, a listed company, is

Section B – TWO questions ONLY to be attempted

Louieed Co

Louieed Co, a listed company, is a major supplier of educational material, selling its products in many countries. It supplies schools and colleges and also produces learning material for business and professional exams. Louieed Co has exclusive contracts to produce material for some examining bodies. Louieed Co has a well-defined management structure with formal processes for making major decisions.

Although Louieed Co produces online learning material, most of its profits are still derived from sales of traditional textbooks. Louieed Co’s growth in profits over the last few years has been slow and its directors are currently reviewing its long-term strategy. One area in which they feel that Louieed Co must become much more involved is the production of online testing materials for exams and to validate course and textbook learning.

Bid for Tidded Co

Louieed Co has recently made a bid for Tidded Co, a smaller listed company. Tidded Co also supplies a range of educational material, but has been one of the leaders in the development of online testing and has shown strong profit growth over recent years. All of Tidded Co’s initial five founders remain on its board and still hold 45% of its issued share capital between them. From the start, Tidded Co’s directors have been used to making quick decisions in their areas of responsibility. Although listing has imposed some formalities, Tidded Co has remained focused on acting quickly to gain competitive advantage, with the five founders continuing to give strong leadership.

Louieed Co’s initial bid of five shares in Louieed Co for three shares in Tidded Co was rejected by Tidded Co’s board. There has been further discussion between the two boards since the initial offer was rejected and Louieed Co’s board is now considering a proposal to offer Tidded Co’s shareholders two shares in Louieed Co for one share in Tidded Co or a cash alternative of $22·75 per Tidded Co share. It is expected that Tidded Co&39;s shareholders will choose one of the following options:

(i) To accept the two-shares-for-one-share offer for all the Tidded Co shares; or,

(ii) To accept the cash offer for all the Tidded Co shares; or,

(iii) 60% of the shareholders will take up the two-shares-for-one-share offer and the remaining 40% will take the cash offer.

In case of the third option being accepted, it is thought that three of the company&39;s founders, holding 20% of the share capital in total, will take the cash offer and not join the combined company. The remaining two founders will probably continue to be involved in the business and be members of the combined company&39;s board.

Louieed Co’s finance director has estimated that the merger will produce annual post-tax synergies of $20 million. He expects Louieed Co’s current price-earnings (P/E) ratio to remain unchanged after the acquisition.

Extracts from the two companies’ most recent accounts are shown below:

The tax rate applicable to both companies is 20%.

Assume that Louieed Co can obtain further debt funding at a pre-tax cost of 7·5% and that the return on cash surpluses is 5% pre-tax.

Assume also that any debt funding needed to complete the acquisition will be reduced instantly by the balances of cash and cash equivalents held by Louieed Co and Tidded Co.

Required:

(a) Discuss the advantages and disadvantages of the acquisition of Tidded Co from the viewpoint of Louieed Co. (6 marks)

(b) Calculate the P/E ratios of Tidded Co implied by the terms of Louieed Co’s initial and proposed offers, for all three of the above options. (5 marks)

(c) Calculate, and comment on, the funding required for the acquisition of Tidded Co and the impact on Louieed Co’s earnings per share and gearing, for each of the three options given above.

Note: Up to 10 marks are available for the calculations. (14 marks)

点击查看答案

第8题

Section A – This ONE question is compulsory and MUST be attemptedLirio Co is an engineerin

Section A – This ONE question is compulsory and MUST be attempted

Lirio Co is an engineering company which is involved in projects around the world. It has been growing steadily for several years and has maintained a stable dividend growth policy for a number of years now. The board of directors (BoD) is considering bidding for a large project which requires a substantial investment of $40 million. It can be assumed that the date today is 1 March 2016.

The BoD is proposing that Lirio Co should not raise the finance for the project through additional debt or equity. Instead, it proposes that the required finance is obtained from a combination of funds received from the sale of its equity investment in a European company and from cash flows generated from its normal business activity in the coming two years. As a result, Lirio Co’s current capital structure of 80 million $1 equity shares and $70 million 5% bonds is not expected to change in the foreseeable future.

The BoD has asked the company’s treasury department to prepare a discussion paper on the implications of this proposal. The following information on Lirio Co has been provided to assist in the preparation of the discussion paper.

Expected income and cash flow commitments prior to undertaking the large project for the year to the end of February 2017

Lirio Co’s sales revenue is forecast to grow by 8% next year from its current level of $300 million, and the operating profit margin on this is expected to be 15%. It is expected that Lirio Co will have the following capital investment requirements for the coming year, before the impact of the large project is considered:

1. A $0·10 investment in working capital for every $1 increase in sales revenue;

2. An investment equivalent to the amount of depreciation to keep its non-current asset base at the present productive capacity. The current depreciation charge already included in the operating profit margin is 25% of the non-current assets of $50 million;

3. A $0·20 investment in additional non-current assets for every $1 increase in sales revenue;

4. $8 million additional investment in other small projects.

In addition to the above sales revenue and profits, Lirio Co has one overseas subsidiary – Pontac Co, from which it receives dividends of 80% on profits. Pontac Co produces a specialist tool which it sells locally for $60 each. It is expected that it will produce and sell 400,000 units of this specialist tool next year. Each tool will incur variable costs of $36 per unit and total annual fixed costs of $4 million to produce and sell.

Lirio Co pays corporation tax at 25% and Pontac Co pays corporation tax at 20%. In addition to this, a withholding tax of 8% is deducted from any dividends remitted from Pontac Co. A bi-lateral tax treaty exists between the countries where Lirio Co is based and where Pontac Co is based. Therefore corporation tax is payable on profits made by subsidiary companies, but full credit is given for corporation tax already paid.

It can be assumed that receipts from Pontac Co are in $ equivalent amounts and exchange rate fluctuations on these can be ignored.

Sale of equity investment in the European country

It is expected that Lirio Co will receive Euro (€) 20 million in three months’ time from the sale of its investment. The € has continued to remain weak, while the $ has continued to remain strong through 2015 and the start of 2016. The financial press has also reported that there may be a permanent shift in the €/$ exchange rate, with firms facing economic exposure. Lirio Co has decided to hedge the € receipt using one of currency forward contracts, currency futures contracts or currency options contracts.

The following exchange contracts and rates are available to Lirio Co.

Currency options (contract size $125,000, exercise price quotation € per $1, premium € per $1)

It is expected that dividends will grow at the historic rate, if the large project is not undertaken.

Lirio Co’s cost of equity capital is estimated to be 12%.

Required:

(a) With reference to purchasing power parity, explain how exchange rate fluctuations may lead to economic exposure. (6 marks)

(b) Prepare a discussion paper, including all relevant calculations, for the board of directors (BoD) of Lirio Co which:

(i) Estimates Lirio Co’s dividend capacity as at 28 February 2017, prior to investing in the large project; (9 marks)

(ii) Advises Lirio Co on, and recommends, an appropriate hedging strategy for the Euro (€) receipt it is due to receive in three months’ time from the sale of the equity investment; (14 marks)

(iii) Using the information on dividends provided in the question, and from (b) (i) and (b) (ii) above, assesses whether or not the project would add value to Lirio Co; (8 marks)

(iv) Discusses the issues of proposed methods of financing the project which need to be considered further. (9 marks)

Professional marks will be awarded in part (b) for the format, structure and presentation of the discussion paper. (4 marks)

点击查看答案

第9题

The chief executive officer (CEO) of Faoilean Co has just returned from a discussion at a

leading university on the ‘application of options to investment decisions and corporate value’. She wants to understand how some of the ideas which were discussed can be applied to decisions made at Faoilean Co. She is still a little unclear about some of the discussion on options and their application, and wants further clarification on the following:

(i) Faoilean Co is involved in the exploration and extraction of oil and gas. Recently there have been indications that there could be significant deposits of oil and gas just off the shores of Ireland. The government of Ireland has invited companies to submit bids for the rights to commence the initial exploration of the area to assess the likelihood and amount of oil and gas deposits, with further extraction rights to follow. Faoilean Co is considering putting in a bid for the rights. The speaker leading the discussion suggested that using options as an investment assessment tool would be particularly useful to Faoilean Co in this respect.

(ii) The speaker further suggested that options were useful in determining the value of equity and default risk, and suggested that this was why companies facing severe financial distress could still have a positive equity value.

(iii) Towards the end of the discussion, the speaker suggested that changes in the values of options can be measured in terms of a number of risk factors known as the ‘greeks’, such as the ‘vega’. The CEO is unclear why option values are affected by so many different risk factors.

Required:

(a) With regard to (i) above, discuss how Faoilean Co may use the idea of options to help with the investment decision in bidding for the exploration rights, and explain the assumptions made when using the idea of options in making investment decisions. (11 marks)

(b) With regard to (ii) above, discuss how options could be useful in determining the value of equity and default risk, and why companies facing severe financial distress still have positive equity values. (9 marks)

(c) With regard to (iii) above, explain why changes in option values are determined by numerous different risk factors and what ‘vega’ determines. (5 marks)

点击查看答案

第10题

Vogel Co, a listed engineering company, manufactures large scale plant and machinery for i

ndustrial companies. Until ten years ago, Vogel Co pursued a strategy of organic growth. Since then, it has followed an aggressive policy of acquiring smaller engineering companies, which it feels have developed new technologies and methods, which could be used in its manufacturing processes. However, it is estimated that only between 30% and 40% of the acquisitions made in the last ten years have successfully increased the company’s shareholder value.

Vogel Co is currently considering acquiring Tori Co, an unlisted company, which has three departments. Department A manufactures machinery for industrial companies, Department B produces electrical goods for the retail market, and the smaller Department C operates in the construction industry. Upon acquisition, Department A will become part of Vogel Co, as it contains the new technologies which Vogel Co is seeking, but Departments B and C will be unbundled, with the assets attached to Department C sold and Department B being spun off into a new company called Ndege Co.

Given below are extracts of financial information for the two companies for the year ended 30 April 2014.

Other information

(i) It is estimated that for Department C, the realisable value of its non-current assets is 100% of their book value, but its current assets’ realisable value is only 90% of their book value. The costs related to closing Department C are estimated to be $3 million.

(ii) The funds raised from the disposal of Department C will be used to pay off Tori Co’s other non-current and current liabilities.

(iii) The 7% unsecured bond will be taken over by Ndege Co. It can be assumed that the current market value of the bond is equal to its book value.

(iv) At present, around 10% of Department B’s PBDIT come from sales made to Department C.

(v) Ndege Co’s cost of capital is estimated to be 10%. It is estimated that in the first year of operation Ndege Co’s free cash flows to firm will grow by 20%, and then by 5·2% annually thereafter.

(vi) The tax rate applicable to all the companies is 20%, and Ndege Co can claim 10% tax allowable depreciation on its non-current assets. It can be assumed that the amount of tax allowable depreciation is the same as the investment needed to maintain Ndege Co’s operations.

(vii) Vogel Co’s current share price is $3 per share and it is estimated that Tori Co’s price-to-earnings (PE) ratio is 25% higher than Vogel Co’s PE ratio. After the acquisition, when Department A becomes part of Vogel Co, it is estimated that Vogel Co’s PE ratio will increase by 15%.

(viii) It is estimated that the combined company’s annual after-tax earnings will increase by $7 million due to the synergy benefits resulting from combining Vogel Co and Department A.

Required:

(a) Discuss the possible reasons why Vogel Co may have switched its strategy of organic growth to one of growing by acquiring companies. (4 marks)

(b) Discuss the possible actions Vogel Co could take to reduce the risk that the acquisition of Tori Co fails to increase shareholder value. (7 marks)

(c) Estimate, showing all relevant calculations, the maximum premium Vogel Co could pay to acquire Tori Co, explaining the approach taken and any assumptions made. (14 marks)

点击查看答案
下载上学吧APP
客服
TOP
重置密码
账号:
旧密码:
新密码:
确认密码:
确认修改
购买搜题卡查看答案
购买前请仔细阅读《购买须知》
请选择支付方式
微信支付
支付宝支付
选择优惠券
优惠券
请选择
点击支付即表示你同意并接受《服务协议》《购买须知》
立即支付
搜题卡使用说明

1. 搜题次数扣减规则:

功能 扣减规则
基础费
(查看答案)
加收费
(AI功能)
文字搜题、查看答案 1/每题 0/每次
语音搜题、查看答案 1/每题 2/每次
单题拍照识别、查看答案 1/每题 2/每次
整页拍照识别、查看答案 1/每题 5/每次

备注:网站、APP、小程序均支持文字搜题、查看答案;语音搜题、单题拍照识别、整页拍照识别仅APP、小程序支持。

2. 使用语音搜索、拍照搜索等AI功能需安装APP(或打开微信小程序)。

3. 搜题卡过期将作废,不支持退款,请在有效期内使用完毕。

请使用微信扫码支付(元)
订单号:
遇到问题请联系在线客服
请不要关闭本页面,支付完成后请点击【支付完成】按钮
遇到问题请联系在线客服
恭喜您,购买搜题卡成功 系统为您生成的账号密码如下:
重要提示: 请勿将账号共享给其他人使用,违者账号将被封禁。
发送账号到微信 保存账号查看答案
怕账号密码记不住?建议关注微信公众号绑定微信,开通微信扫码登录功能
警告:系统检测到您的账号存在安全风险

为了保护您的账号安全,请在“上学吧”公众号进行验证,点击“官网服务”-“账号验证”后输入验证码“”完成验证,验证成功后方可继续查看答案!

- 微信扫码关注上学吧 -
警告:系统检测到您的账号存在安全风险
抱歉,您的账号因涉嫌违反上学吧购买须知被冻结。您可在“上学吧”微信公众号中的“官网服务”-“账号解封申请”申请解封,或联系客服
- 微信扫码关注上学吧 -
请用微信扫码测试
选择优惠券
确认选择
谢谢您的反馈

您认为本题答案有误,我们将认真、仔细核查,如果您知道正确答案,欢迎您来纠错

上学吧找答案