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问答题3.Inordertoraisefundsforfutureprojects,themanagementofBentoCo,alargemanufacturingcompany,isconsideringdisposingofoneofitssubsidiarycompanies,OkazuCo,whichisinvolvedinmanufacturingrubbertubing.Theyareconsideringundertakingthedisposalthroughamanagementbuy-out(MBO)oramanagementbuy-in(MBI).BentoCowants$60millionfromthesaleofOkazuCo.GivenbelowareextractsfromthemostrecentfinancialstatementsforOkazuCo:Yearending30April(allamountsin$000)Notesrelatingtothefinancialstatementsabove:(i)Currentassets,non-currentassetsandthetradeandotherpayableswillbetransferredtothenewcompanywhenOkazuCoissold.ThebankoverdraftwillberepaidbyBentoCopriortothesaleofOkazuCo.(ii)Withtheexceptionofthebankoverdraft,BentoCohasprovidedallthefinancingtoOkazuCo.Noliabilities,exceptthetradeandotherpayablesspecifiedabove,willbetransferredtothenewcompanywhenOkazuCoissold.(iii)Itisestimatedthatthemarketvalueofthenon-currentassetsis30%higherthanthebookvalueandthemarketvalueofthecurrentassetsisequivalenttothebookvalue.(iv)ThegroupfinancecostsandtaxationareallocatedbyBentoCotoallitssubsidiariesinpre-agreedproportions.OkazuCo’sseniormanagementteamhasapproachedDofuCo,aventurecapitalcompany,abouttheproposedMBO.DofuCohasagreedtoprovideleveragedfinancefora50%equitystakeinthenewcompanyonthefollowingbasis:(i)$30millionloanintheformofan8%bondonwhichinterestispayableannually,basedontheloanamountoutstandingatthestartofeachyear.Thebondwillberepaidonthebasisoffixedequalannualpayments(constitutingofinterestandprincipal)overthenextfouryears;(ii)$20millionloanintheformofa6%convertiblebondonwhichinterestispayableannually.Conversionmaybeundertakenonthebasisof50equitysharesforevery$100fromthebeginningofyearfiveonwards;(iii)5,000,000$1equitysharesfor$5,000,000.OkazuCo’sseniormanagementwillcontribute$5,000,000for5,000,000$1equitysharesandowntheremaining50%oftheequitystake.Asaconditionforprovidingthefinance,DofuCowillimposearestrictivecovenantthatthenewcompany’sgearingratiowillbenohigherthan75%attheendofitsfirstyearofoperations,andthenfalltonohigherthan60%,50%and40%attheendofyeartwotoyearfourrespectively.Thegearingratioisdeterminedbythebookvalueofdebtdividedbythecombinedbookvaluesofdebtandequity.AftertheMBO,itisexpectedthatearningsbeforeinterestandtaxwillincreaseby11%peryearandannualdividendsof25%ontheavailableearningswillbepaidforthenextfouryears.Itisexpectedthattheannualgrowthrateofdividendswillreduceby60%fromyearfiveonwardsfollowingtheMBO.Thenewcompanywillpaytaxatarateof20%peryear.Thenewcompany’scostofequityhasbeenestimatedat12%.Required:
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