案例分析题Selorne Co Selorne Co is one of the biggest removal companies in Pauland, offering home and business removals

案例分析题Wardegul Co, a company based in the Eurozone

案例分析题Section B TWO questions ONLY to be attempted Bournelorth Co is an IT company which was established by three friends ten years ago

案例分析题Washi Co is a large

案例分析题Arthuro Co group Arthuro Co is based in Hittyland and is listed on Hittylands stock exchange. Arthuro Co has one wholly-owned subsidiary, Bowerscots Co, based in the neighbouring country of Owlia. Hittyland and Owlia are in a currency union and the currency of both countries is the $. Arthuro Co purchased 100% of Bowerscots Cos share capital three years ago. Arthuro Co has the power under the acquisition to determine the level of dividend paid by Bowerscots Co. However, Arthuro Cos board decided to let Bowerscots Cos management team have some discretion when making investment decisions. Arthuro Cos board decided that it should receive dividends of 60% of Bowerscots Cos post-tax profits and has allowed Bowerscots Co to use its remaining retained earnings to fund investments chosen by its management. A bonus linked to Bowerscots Cos after-tax profits is a significant element of Bowerscots Cos managers remuneration. Bowerscots Co operates in a very competitive environment. Recently, a senior member of its management team has left to join a competitor. Arthuro Cos dividend policy Until three months ago, Arthuro Co had 90 million $2 equity shares in issue and $135 million 8% bonds. Three months ago it made a 1 for 3 rights issue. A number of shareholders did not take up their rights, but sold them on, so there have been changes in its shareholder base. Some shareholders expressed concern about dilution of their dividend income as a result of the rights issue. Therefore, Arthuro Cos board felt it had to promise, for the foreseeable future, at least to maintain the dividend of $074 per equity share, which it paid for the two years before the rights issue. Arthuro Cos board is nevertheless concerned about whether it will have sufficient funds available to fulfil its promise about the dividend. It has asked the finance director to forecast its dividend capacity based on assumptions about what will happen in a normal year. The finance director has made the following assumptions in the forecast: 1. Sales revenue can be assumed to be 4% greater than the most recent years of $520 million. 2. The operating profit margin can be assumed to be 20%. 3. Operating profit can be assumed to be reported after charging depreciation of $30 million and profit on disposal of non-current assets of $59 million. The cost of the non-current assets sold can be assumed to be $35 million and its accumulated depreciation to be $246 million. Depreciation is allowable for tax and the profit on disposal is fully chargeable to tax. 4. The net book value of non-current assets at the year end in the most recent accounts was $110 million. To maintain productive capacity, sufficient investment to increase this net book value figure 12 months later by 4% should be assumed, in line with the increase in sales. The calculation of investment required for the year should take into account the depreciation charged of $30 million, and net book value of the non-current assets disposed of during the year. 5. A $015 investment in working capital can be assumed for every $1 increase in sales revenue. 6. Bowerscots Cos pre-tax profits can be assumed to be $45 million. Arthuro Cos directors have decided that if there is a shortfall of dividend capacity, compared with the dividends required to maintain the current dividend level, the percentage of post-tax profits of Bowerscots Co paid as dividend should increase, if necessary up to 100%. Taxation Arthuro Co pays corporation tax at 30% and Bowerscots Co pays corporation tax at 20%. A withholding tax of 5% is deducted from any dividends remitted by Bowerscots Co. There is a bilateral tax treaty between Hittyland and Owlia. Corporation tax is payable by Arthuro Co on profits declared by Bowerscots Co, but Hittyland gives full credit for corporation tax already paid in Owlia. Hittyland gives no credit for withholding tax paid on dividends in Owlia. Required:

案例分析题Around seven years ago, Opao Co

案例分析题Introduction Westparley Co is a listed retailer, mainly selling food and small household goods

案例分析题Furlion Co manufactures heavy agricultural equipment and machinery which can be used in difficult farming conditions. Furlion Cos 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 Cos equipment is particularly suitable for use on the reclaimed land. Because of the costs and other problems involved in transporting its products, Furlion Cos 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 $101 million. However, Furlion Cos 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 Cos 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 Cos non-executive directors has read about possible changes in interest rates and wonders how these might affect the investment appraisal. Required:

案例分析题Section A This question is compulsory and MUST be attempted Chikepe Co is a large listed company operating in the pharmaceutical industry with a current market value of equity of $12,600 million and a debt to equity ratio of 30:70, in market value terms. Institutional investors hold most of its equity shares. The company develops and manufactures antibiotics and anti-viral medicines. Both the company and its products have an established positive reputation among the medical profession, and its products are used widely. However, its rate of innovation has slowed considerably in the last few years and it has fewer new medical products coming into the market. At a recent meeting of the board of directors (BoD), it was decided that the company needed to change its current strategy of growing organically to one of acquiring companies, in order to maintain the growth in its share price in the future. The members of the BoD had different opinions on the type of acquisition strategy to pursue. Director A was of the opinion that Chikepe Co should follow a strategy of acquiring companies in different business sectors. She suggested that focusing on just the pharmaceutical sector was too risky and acquiring companies in different business sectors will reduce this risk. Director B was of the opinion that Director As suggestion would not result in a reduction in risk for shareholders. In fact, he suggested that this would result in agency related issues with Chikepe Cos shareholders reacting negatively and as a result, the companys share price would fall. Instead, Director B suggested that Chikepe Co should focus on its current business and acquire other established pharmaceutical companies. In this way, the company will gain synergy benefits and thereby increase value for its shareholders. Director C agreed with Director B, but suggested that Chikepe Co should consider relatively new pharmaceutical companies, as well as established businesses. In her opinion, newer companies might be involved in research and development of innovative products, which could have high potential in the future. She suggested that using real options methodology with traditional investment appraisal methods such as net present value could help establish a more accurate estimate of the potential value of such companies. The company has asked its finance team to prepare a report on the value of a potential target company, Foshoro Co, before making a final decision. Foshoro Co Foshoro Co is a non-listed pharmaceutical company established about 10 years ago. Initially Foshoro Co grew rapidly, but this rate of growth slowed considerably three years ago, after a venture capital equity backer exited the company by selling its stake back to the founding directors. The directors had to raise substantial debt capital to buy back the equity stake. The companys current debt to equity ratio is 60:40. This high level of gearing means that the company will find it difficult to obtain funds to develop its innovative products in the future. The following financial information relates to Foshoro Co: Extract from the most recent statement of profit or loss In arriving at the profit before interest and tax, Foshoro Co deducted tax allowable depreciation and other non-cash expenses totalling $1120 million. It requires a cash investment of $982 million in non-current assets and working capital to continue its operations at the current level. Three years ago, Foshoro Cos profit after tax was $833 million and this has been growing steadily to their current level. Foshoro Cos profit before interest and tax and its cash flows grew at the same growth rate as well. It is likely that this growth rate will continue for the foreseeable future if Foshoro Co is not acquired by Chikepe Co. Foshoro Cos cost of capital has been estimated at 10%. Combined company: Chikepe Co and Foshoro Co Once Chikepe Co acquires Foshoro Co, it is predicted that the combined companys sales revenue will be $4,200 million in the first year, and its operating profit margin on sales revenue will be 20% for the foreseeable future. After the first year, the sales revenue is expected to grow at 7% per year for the following three years. It is anticipated that after the first four years, the growth rate of the combined companys free cash flows will be 56% per year. The combined companys tax allowable depreciation is expected to be equivalent to the amount of investment needed to maintain the current level of operations. However, as the companys sales revenue increases over the four-year period, the combined company will require an additional investment in assets of $200 million in the first year and then $064 per $1 increase in sales revenue for the next three years. It can be assumed that the asset beta of the combined company is the weighted average of the individual companies asset betas, weighted in proportion of the individual companies value of equity. It can also be assumed that the capital structure of the combined company remains at Chikepe Cos current capital structure level, a debt to equity ratio of 30:70. Chikepe Co pays interest on borrowings at a rate of 53% per annum. Chikepe Co estimates that it will be able to acquire Foshoro Co by paying a premium of 30% above its estimated equity value to Foshoro Cos shareholders. Other financial information The current annual government borrowing base rate is 2% and the annual market risk premium is estimated at 7%. Both companies pay tax at an annual rate of 20%. Chikepe Co estimates equity values in acquisitions using the free cash flow to firm method. Future acquisitions The BoD agreed that in the future it is likely that Chikepe Co will target both listed and non-listed companies for acquisition. It is aware that when pursuing acquisitions of listed companies, the company would need to ensure that it complied with regulations such as the mandatory bid rule and the principle of equal treatment to protect shareholders. The BoD is also aware that some listed companies may attempt to defend acquisitions by employing anti-takeover measures such as poison pills and disposal of crown jewels. Required:

问答题1.YilandweYilandwe,whosecurrencyistheYilandweRand(YR),hasfacedextremelydifficulteconomicchallengesinthepast25yearsbecauseofsomequestionableeconomicpoliciesandpoliticaldecisionsmadebyitspreviousgovernments.AlthoughYilandwe’spopulationisgenerallypoor,itspeopleareneverthelesswell-educatedandambitious.Justoverthreeyearsago,anewgovernmenttookofficeandsincethenithasimposedanumberofstrictmonetaryandfiscalcontrols,includinganannualcorporationtaxrateof40%,inanattempttobringYilandweoutofitsdifficulties.Asaresult,theannualrateofinflationhasfallenrapidlyfromahighof65%toitscurrentlevelof33%.ThesestrictmonetaryandfiscalcontrolshavemadeYilandwe’sgovernmentpopularinthelargercitiesandtowns,butlesspopularintheruralareaswhichseemtohavesuffereddisproportionatelyfromthestrictmonetaryandfiscalcontrols.ItisexpectedthatYilandwe’sannualinflationratewillcontinuetofallinthecomingfewyearsasfollows:Yilandwe’sgovernmenthasdecidedtocontinuetheprogressmadesofar,byencouragingforeigndirectinvestmentintothecountry.Recently,governmentrepresentativesheldtradeshowsinternationallyandofferedbusinessesanumberofconcessions,including:(i)zerocorporationtaxpayableinthefirsttwoyearsofoperation;and(ii)anopportunitytocarryforwardtaxlossesandwritethemoffagainstfutureprofitsmadeafterthefirsttwoyears.ThegovernmentrepresentativesalsopromisedinternationalcompaniesinvestinginYilandweprimelocationsintownsandcitieswithgoodtransportlinks.ImoniCoImoniCo,alargelistedcompanybasedintheUSAwiththeUSdollar($)asitscurrency,manufactureshightechdiagnosticcomponentsformachinery,whichitexportsworldwide.Afterattendingoneofthetradeshows,ImoniCoisconsideringsettingupanassemblyplantinYilandwewherepartswouldbesentandassembledintoaspecifictypeofcomponent,whichiscurrentlybeingassembledintheUSA.Onceassembled,thecomponentwillbeexporteddirectlytocompaniesbasedintheEuropeanUnion(EU).TheseexportswillbeinvoicedinEuro(€).AssemblyplantinYilandwe:financialandotherdataprojectionsItisinitiallyassumedthattheprojectwilllastforfouryears.Thefour-yearprojectwillrequireinvestmentsofYR21,000millionforlandandbuildings,YR18,000millionformachineryandYR9,600millionforworkingcapitaltobemadeimmediately.TheworkingcapitalwillneedtobeincreasedannuallyatthestartofeachofthenextthreeyearsbyYilandwe’sinflationrateanditisassumedthatthiswillbereleasedattheendoftheproject’slife.Itcanbeassumedthattheassemblyplantcanbebuiltveryquicklyandproductionstartedalmostimmediately.Thisisbecausethebasicfacilitiesandinfrastructurearealreadyinplaceastheplantwillbebuiltonthepremisesandgroundsofaschool.Theschoolisideallylocated,nearthemainhighwayandrailwaylines.Asaresult,theschoolwillcloseandthechildrencurrentlystudyingtherewillberelocatedtootherschoolsinthecity.Thegovernmenthaskindlyagreedtoprovidefreebusestotakethechildrentotheseschoolsforaperiodofsixmonthstogiveparentstimetoarrangeappropriatetransportinthefuturefortheirchildren.Thecurrentsellingpriceofeachcomponentis€700andthispriceislikelytoincreasebytheaverageEUrateofinflationfromyear1onwards.Thenumberofcomponentsexpectedtobesoldeveryyearareasfollows:ThepartsneededtoassembleintothecomponentsinYilandwewillbesentfromtheUSAbyImoniCoatacostof$200percomponentunit,fromwhichImoniCowouldcurrentlyearnapre-taxcontributionof$40foreachcomponentunit.However,ImoniCofeelsthatitcannegotiatewithYilandwe’sgovernmentandincreasethetransferpriceto$280percomponentunit.ThevariablecostsrelatedtoassemblingthecomponentsinYilandwearecurrentlyYR15,960percomponentunit.ThecurrentannualfixedcostsoftheassemblyplantareYR4,600million.Allthesecosts,whereverincurred,areexpectedtoincreasebythatcountry’sannualinflationeveryyearfromyear1onwards.ImoniCopayscorporationtaxonprofitsatanannualrateof20%intheUSA.ThetaxinboththeUSAandYilandweispayableintheyearthatthetaxliabilityarises.AbilateraltaxtreatyexistsbetweenYilandweandtheUSA.Taxallowabledepreciationisavailableat25%peryearonthemachineryonastraight-linebasis.ImoniCowillexpectannualroyaltiesfromtheassemblyplanttobemadeeveryyear.Thenormalannualroyaltyfeeiscurrently$20million,butImoniCofeelsthatitcannegotiatethiswithYilandwe’sgovernmentandincreasetheroyaltyfeeby80%.Onceagreed,thisfeewillnotbesubjecttoanyinflationaryincreaseintheproject’sfour-yearperiod.IfImoniCodoesdecidetoinvestinanassemblyplantinYilandwe,itsexportsfromtheUSAtotheEUwillfallanditwillincurredundancycosts.Asaresult,ImoniCo’safter-taxcashflowswillreducebythefollowingamounts:ImoniConormallyusesitscostofcapitalof9%toassessnewprojects.However,thefinancedirectorsuggeststhatImoniCoshoulduseaprojectspecificdiscountrateof12%instead.Required:

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问答题(b)Comment on the impact of implementing TE's proposal and suggest possible actions Lamri may take as a result.(6 marks)

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问答题(b)Discuss possible reasons for the suggestions made by each of the three managers.(13 marks)

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