The proposal should be based on a sound analysis of the buyer’s current situation, taking into account of ________ and ________ within which the transaction takes place.

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

He constantly ______ his proposal that ______ of the budget surplus be used to offer a voluntary prescription drug benefit to seniors.

A．views; many

B．reiterates; a part

C．complains; a great amount

D．thinks; lots

He constantly ______ his proposal that ______ of the budget surplus be used to offer a voluntary prescription drug benefit to seniors.

  A. views; many          B. reiterates; a part

  C. complains; a great amount     D. thinks; lots

The proposal as offered by Kaus ______.

A．will increase the fear and loathing of the unemployed underclass by cutting off checks for all ablebodied recipients

B．will drastically increase the income taxes for taxpayers

C．is supposed to help establish reconciliation between the poor and the rich though the gap may be unbridgeable

D．is too costly to be carried out

3 Damian is the finance director of Linden Limited, a medium sized, unquoted, UK trading company, with a 31 July

year end. Damian personally owns 10% of the ordinary issued share capital of Linden Limited, for which he paid

￡10,000 in June 1998. He estimates that the current market value of Linden Limited is ￡9 million and that the

company will make taxable profits of ￡1·4 million in the forthcoming year to 31 July 2007.

(a) Damian believes that Linden Limited should conduct its activities in a socially responsible manner and to this

end has proposed that in future all cars purchased by the company should be low emission vehicles. The sales

director has stated that several of his staff, who are the main recipients of company cars, other than the directors,

are extremely unhappy with this proposal, perceiving it as downgrading their value and status.

The cars currently provided to the sales staff have a list price of ￡19,600, on which Linden Limited receives a

bulk purchase discount of 6% from the dealer, and a CO2 emission rate of 168 grams/kilometre. The company

pays for up to ￡400 of accessories, of the salesmen’s own choice to be fitted to the cars and all of the running

costs, including private petrol. The cars are replaced every three years and the ‘old’ cars are sold at auction,

because they are high mileage vehicles.

The low emission cars it is proposed to purchase will have the same list price as the current cars, but the dealer

is only prepared to offer a bulk discount of 5% on these vehicles. Damian does not propose to make any other

changes to Linden Limited’s company car policy or practice.

Required:

(i) Explain the tax consequences of the proposed move to low emission vehicles for both the individual

salesmen and Linden Limited, illustrating your answer by means of relevant calculations of the tax and

national insurance (NIC) savings arising. (9 marks)

Which of the following proposals best responds to the issues raised by the author?

A．Innovative programmes using multiple approaches should be set up to reduce the level of unemployment.

B．A compromise should be found between the positions of those who view joblessness an evil greater than economic control and those who hold the opposite view.

C．New statistical indices should be developed to measure the degree to which unemployment and inadequately paid employment cause suffering.

D．Consideration should be given to the ways in which statistics can act as partial causes of the phenomena that they purport to measure.

Which of the following proposals best responds to the issues raised by the author?

A．Innovative programmes using multiple approaches should be set up to reduce the level of unemployment.

B．A compromise should be found between the positions of those who view joblessness an evil greater than economic control and those who hold the opposite view.

C．New statistical indices should be developed to measure the degree to which unemployment and inadequately paid employment cause suffering.

D．Consideration should be given to the ways in which statistics can act as partial causes of the phenomena that they purport to measure.

Which of the following proposals best responds to the issues raised by the author?

A．Innovative programmes using multiple approaches should be set up to reduce the level of unemployment.

B．A compromise should be found between the positions Of those who view joblessness an evil greater than economic control and those who hold the opposite view.

C．New statistical indices should be developed to measure the degree to which unemployment and inadequately paid employment cause suffering.

D．Consideration should be given to the ways in which statistics can act as partial causes of the phenomena that they purport to measure.

Which of the following proposals best responds to the issues raised by the author?

A．Innovative programmes using multiple approaches should be set up to reduce the level of unemployment.

B．A compromise should be found between the positions of those who view joblessness an evil greater than economic control and those who hold the opposite view.

C．New statistical indices should be developed to measure the degree to which unemployment and inadequately paid employment cause suffering.

D．Consideration should be given to the ways in which statistics can act as partial causes of the phenomena that they purport to measure.

Which of the following proposals best responds to the issues raised by the author?

A．Innovative programmes using multiple approaches should be set up to reduce the level of unemployment.

B．A compromise should be found between the positions of those who view joblessness an evil greater than economic control and those who hold the opposite view.

C．New statistical indices should be developed to measure the degree to which unemployment and inadequately paid employment cause suffering.

D．Consideration should be given to the ways in which statistics can act as partial causes of the phenomena that they purport to measure.