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Финансовый университет при Правительстве РФ

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<<< < Предыдущая 1 23 / 53 4 5 > Следующая >>>

STUDY QUESTION BANK – ADVANCED FINANCIAL MANAGEMENT (P4)

24 October – BZO announces that 53% of shareholders have accepted its offer and makes the offer unconditional.

Required:

(a)

Discuss the advantages and disadvantages of growth by acquisition.

(7 marks)

(b)Discuss whether or not the bids by BZO and Nadion are financially prudent from the

point of view of the companies’ shareholders. Relevant supporting calculations must be shown. (17 marks)

(c)Discuss problems of corporate governance that might arise for the shareholders of

Demast Ltd and BZO plc.

(6 marks)

(30 marks)

Question 20 DRICOM PLC

Dricom plc is a manufacturer of mobile phones. The company was successful in the early 1990s, and established a small chain of shops in major UK cities. In 1995-6 the company’s new products experienced reliability problems and competition from superior products, causing sales to fall by forty percent from 1994-5 levels. This lead to substantial losses being made in both 1995–6 and 1996–7.

The company’s managers are confident that the technical problems can be overcome, but this will require an investment of £2.25 million for new automated equipment and quality monitoring machinery. Dricom’s bank, BXT Bank, is concerned about the company’s recent performance, and a new debt or equity issue on the stock market is not possible. Without the new investment Dricom is unlikely to be competitive, and might not survive the next year. With the new investment profits before interest and tax are forecast to be at least £750,000 per year from 1998-99 for at least five years.

Dricom plc

Summarised Statement of Financial Position as at 30 September 1997

	£000
Land and buildings	1,500
Plant and machinery (net)	2,100
	____
Current assets	3,600
Current assets
Inventory	1,340
Receivables	1,090
Cash at bank and in hand	35
	____
Total current assets	2,465
Liabilities: amounts falling due within one year
Overdraft	620
Other payables	940
	_____
	1,560
	_____
Total assets less current liabilities	4,505
	_____

ADVANCED FINANCIAL MANAGEMENT (P4) – STUDY QUESTION BANK

Liabilities: amounts falling due after more than one year

Term loan (from BXT Bank) 9% debenture 2010

8% convertible debenture 1999

10% loan stock 2005

Capital and reserves

Called up share capital (£1 par value)

Share premium account

Retained earnings

Total shareholders’ funds

Total capital employed

Notes:

800

500

1,000

500

_____

2,800

1,000

945

(240)

_____

1,705

_____

4,505

_____

(i)The 9% straight debenture is secured by a fixed charge on the company’s main factory building, the convertible debenture and term loan by a floating charge on fixed assets. The loan stock and overdraft are unsecured.

(ii)The land and buildings are believed to have a realisable value 20% less than their net book value.

(iii)If the company ceased trading inventory would be sold at 50% of their book value.

(iv)The new equipment would result in fifty staff being made redundant, with an immediate after tax cost of £500,000. If the company were to be liquidated after tax redundancy payments would total £1 million. Redundancy payments may be assumed to rank before unsecured creditors.

(v)Obsolete machinery with a net book value of £800,000 will be sold for £300,000 irrespective of whether or not the new investment takes place. The remainder of the plant and machinery could be disposed of at net book value. All disposal values are after tax.

(vi)The overdraft currently costs 10% per year and the bank term loan 12% per year.

(vii)The company’s current share price is 23 pence, loan stock price £78, straight debenture price £90 and convertible debenture price £94. All marketable debt has a par and redemption value of £100.

Dricom’s finance director believes that a corporate restructuring could solve the company’s problems, and has made the following proposals:

(i)Existing shareholders are to be offered 28 pence per share to redeem their shares, which would then be cancelled.

(ii)£1 million would be provided by a venture capital organisation in return for 700,000 new 25 pence par value ordinary shares.

(iii)The company’s directors and employees would subscribe to 500,000 new 25 pence ordinary shares at a price of 150 pence per share.

STUDY QUESTION BANK – ADVANCED FINANCIAL MANAGEMENT (P4)

(iv)The convertible debenture is to be replaced by new ordinary shares (par value 25 pence), with 60 ordinary shares for every £100 nominal value loan stock.

(v)The term loan is to be renegotiated with the bank and the total amount of the loan increased to £2 million. This would have an expected interest charge of 13% per annum. A floating charge on fixed assets would be offered on the overdraft.

(vi)All other long-term loans would remain unchanged.

Apart from the directors, none of the above parties have yet been consulted regarding the proposed reconstruction.

Following a reconstruction no corporate tax is expected to be paid for at least two years. The corporate tax rate is 33%.

The average price/earnings ratio in Dricom’s industry is 12:1.

Required:

Acting as a consultant to Dricom plc prepare a report evaluating whether or not the suggested scheme of reconstruction is likely to succeed.

A full pro forma Statement of Financial Position is not required as part of your evaluation. State clearly any assumptions that you make.

(30 marks)

Question 21 EQUITY AND DEBT ISSUES

(a)Describe the methods of raising new equity finance that can be used by an unlisted

company.

(8 marks)

(b)Discuss the factors to be considered by a listed company when choosing between an issue

of debt and an issue of equity finance.

(8 marks)

(16 marks)

Question 22 GOVERNMENT ASSISTANCE

(a)Discuss and give examples of how governments assist companies in their financing

requirements.

(12 marks)

(b)You have been asked to advise on how to develop the planning process for a company. Discuss what stages the company is likely to go through in its corporate planning.

(12 marks)

(c)National Sand is a public sector company that is about to be privatised. The company’s advisors have suggested that a tender issue is used with a minimum price of 120 pence.

The company will issue 400 million shares, with issue costs estimated to be 3% of gross proceeds. A market research survey suggests that the likely pattern of tenders is:

ADVANCED FINANCIAL MANAGEMENT (P4) – STUDY QUESTION BANK

Price (pence)	No of shares	No of applicants
	Tendered for (million)
150	5	10
145	20	250
140	80	10,000
135	200	200,000
130	350	410,000
125	1,200	1,500,000
120	1,500	1,800,000

Required:

(i)Explain the advantages and disadvantages of a tender issue for National Sand.

(5 marks)

(ii)Calculate the average share holding that is likely to result from the tender

issue. State clearly any assumptions that you make.

(3 marks)

(iii)Shortly after the issue the government unexpectedly announces that 10% of the net proceeds of this issue may be retained by the company to be invested, the remainder of the proceeds returning to the government.

The company’s directors have identified four areas for new investment:

		Amount to be	Expected profitability
		invested (£m)	index
(i)	Golf	10	1.20
(ii)	Other leisure activities	20	1.10
(iii)	Construction	10	1.06
(iv)	Foreign acquisitions	the balance of the 10%	1.05

Existing investments have a zero net present value.

Required:

Estimate the expected share price of National Sand once the government’s action and the company’s investment plans become public knowledge.

State clearly any assumptions that you make.

(5 marks)

(35 marks)

Question 23 IXT

Mr Axelot has just inherited the controlling interest in IXT plc. At his first board of directors’ meeting an item for discussion is the financing of a £5 million expansion scheme. Mr Axelot has read that debt finance is normally cheaper than equity finance and suggests that all external finance during the next five years should be in the form of debt. For the expansion scheme he has suggested using either-

(a)A fixed rate 10 year Swiss Franc bond for 12.25 million francs issued in Zurich at an interest rate of 8% per year or

(b)A 13% debenture 20X4–20X6 issued at par of £100 with warrants to purchase ordinary shares in five years time at a price of 450 pence per share.

STUDY QUESTION BANK – ADVANCED FINANCIAL MANAGEMENT (P4)

A director has challenged Mr Axelot’s five year financing strategy, saying that it would be too risky, and has suggested that the £5 million expansion scheme be financed using a placing of new ordinary shares at a price of 245 pence per share.

Financial details of IXT are summarised below. Earnings before interest payable and tax are expected to increase by 20% per year for the next five years, during which time approximately £5 million per year will be required from external financing sources. The company normally uses a dividend payout ratio of 40% and corporate tax rates are not expected to change. IXT’s current share price is 250 pence ex div.

The level of inflation in Switzerland is 2% per year and in the United Kingdom 8% per year. The current spot exchange rate is SF 2.445 – 2.450/£.

IXT summarised Statement of Financial Position as at 31 March 19Xl

Fixed assets

Tangible fixed assets

Investments

Current assets

Inventory

Receivables

Bank

Current liabilities

Short-term loans

Overdrafts

Trade payables

Other

Liabilities falling due after more than one year Debentures and loan stock Unsecured bank loans

Capital and reserves

Called up share capital (25 pence par value) Share premium account

Revaluation reserve Retained earnings

£000 £000

33,000

4,500

______

37,500

12,400

9,200

1,400

______

23,000

(4,200)

(6,400)

(10,100)

(1,800)

______

(22,500)

(5,000)

(8,400)

______

(13,400)

______

24,600

______

4,000

3,500

3,900

13,200

______

24,600

______

ADVANCED FINANCIAL MANAGEMENT (P4) – STUDY QUESTION BANK

IXT summarised Income Statement for the year ending 31 March 19Xl
	£000
Turnover	53,500
	______
Trading profit	13,400
Investment income	350
Interest payable	3,000
Taxable income	10,750
Taxation	3,762
Profit attributable to ordinary shareholders	6,988
Dividend	2,795
Profit retained for the year	4,193

Required:

(a)Explain why the cost of debt finance for a company is normally less than the cost of

equity finance.

(4 marks)

Relevant calculations should be included to your answers to both parts (b) and (c) of this question.

State clearly any assumptions that you make.

(b)Appraise Mr Axelot’s suggested strategy that all external financing during the next five

years should be in the form of debt.

(8 marks)

(c)Discuss whether IXT plc should finance the current £5m expansion project with the

Swiss franc bond, the 13% debenture or the placing.

(9 marks)

(d)A non-executive director mentions that his company has recently used mezzanine financing and suggests that IXT might consider this form of financing.

Explain briefly what mezzanine financing is and how it might be useful to IXT. (4 marks)

(25 marks)

Question 24 NOIFA LEISURE PLC

Chairman’s report

“The group’s financial position has never been stronger. Turnover has risen 209% and the share price has almost doubled during the last four years. Since the end of the year the company has acquired Beddall Hotels for £100 million, financed at only 9% per year by a Euro floating rate loan which has little risk. Our objective is to become the largest hotel group in the United Kingdom within five years.”

STUDY QUESTION BANK – ADVANCED FINANCIAL MANAGEMENT (P4)

Income Statement summaries
		Years ending 31 December
19.06		19.07	19.08	19.09
	£m	£m	£m	£m
Turnover	325	370	490	680
	——	——	——	——
Operating profit	49	60	75	92
Investment income	18	10	3	1
	——	——	——	——
	67	70	78	93
Interest payable	14	16	24	36
	——	——	——	——
Profit before tax	53	54	54	57
Taxation	20	19	19	20
	——	——	——	——
Profit after taxation	33	35	35	37
Extraordinary items (see note)	(3)	–	–	4
	——	——	——	——
Profit attributable to shareholders	30	35	35	41
Dividends	12	12	12	12
	——	——	——	——
Retained earnings	18	23	23	29
	——	——	——	——

Note - (Loss)/gain on disposal of fixed assets.

Statement of Financial Position summaries

			At 31 December
	19.06	19.07	19.08	19.09
Fixed assets	£m	£m	£m	£m
Tangible assets	165	260	424	696
Investments	120	68	20	4
	——	——	——	——
Current assets	285	328	444	700
Current assets
Inventory	40	45	70	110
Receivables	56	52	75	94
Cash	2	3	4	5
	——	——	——	——
	98	100	149	209
Less Current liabilities	——	——	——	——
Less Current liabilities
Trade payables	82	94	130	176
Taxation	18	19	19	20
Overdraft	–	–	42	68
Other	15	24	28	42
	——	——	——	——
	115	137	219	306
	——	——	——	——
Total assets less current liabilities 268		291	374	603
	——	——	——	——

ADVANCED FINANCIAL MANAGEMENT (P4) – STUDY QUESTION BANK

Financed by
Ordinary shares (10 pence par)				50	50		50		50
Share premium				22	22		22		22
Revaluation reserve				–	–		–		100
Retained earnings				74	97		120		149
			——		——		——		——
Shareholders’ funds				146	169		192		321
Bank loans				42	42		102		102
13% debenture 19.06/19.08				80	80		80		180
			——		——		——		——
				268	291		374		603
			——		——		——		——
Analysis by type of activity
			19.06		19.07		19.08			19.09
		Turnover Profit Turnover Profit Turnover						Profit Turnover Profit
			(Note 1)
		£m	£m	£m	£m	£m		£m	£m	£m
Hotels		196	36	227	41	314		37	471	45
Theme park		15	(3)	18	(2)	24		3	34	5
Bus company		24	6	28	8	38		14	46	18
Car hire		43	7	45	8	52		12	62	15
Zoo (Note 2)		5	(1)	6	(1)	9		–	10	(1)
Waxworks		10	1	11	3	13		4	14	5
Publications		32	3	35	3	40		5	43	5
		——	——	——	——	——	——		——	——
		325	49	370	60	490		75	680	92
		——	——	——	——	——	——		——	——
Notes:
(1)	Operating profit before taxation.
(2)	The zoo was sold during 19.09.
					19.06		19.07		19.08	19.09
Noifa plc average share price (pence)						82	104		120	159
FT 100 share index					1,500 1,750			1,800 2,300
Leisure industry share index						178	246		344	394
Leisure industry PE ratio						10:1	12:1		19:1	25:1

Required:

In his report the chairman stated that “the group’s financial position has never been stronger”. From the viewpoint of an external consultant appraise whether you agree with the chairman. Discussion of the group’s financing policies and strategic objective, with suggestions as to how these might be altered, should form part of your appraisal.

Relevant calculations must be shown.

(25 marks)

STUDY QUESTION BANK – ADVANCED FINANCIAL MANAGEMENT (P4)

Question 25 TWELLO

A four year summary of the financial accounts of Twello plc is shown below:

Consolidated income statements for the years

19X5

	£m
Sales	742
Operating profit	22
Interest receivable
less-payable	(2)
Profit on ordinary
activities before tax	20
Taxation	(7)
	___
	13
Extraordinary items	(4)
Dividends	(4)
	___
Profit retained	5
	___

Consolidated Statement of Financial Position

19X5
Fixed assets	£m
Fixed assets
Tangible assets	142
Long-term investments	4
	___
	146
	___
Current assets
Inventory	43
Receivables	18
Money market investments	11
Cash	4
	___
	76
	___
Less: Current liabilities
Bank loans and overdrafts	8
Trade payables	66
Taxation	7
Proposed dividend	2
Other short-term liabilities	21
	___
	104
	___
Total assets less
current liabilities	118
	___

19X6

£m 859 25

–

(8)

___

–

(5)

___

19X6

£m

168

___

174

___

103

___

165

___

19X7

£m 961 40

(5)

(12)

___

(2)

(7)

___

19X7

£m

189

___

196

___

103

___

150

___

149

___

19X8

£m 1,028 54

(6)

(17)

___

–

(9)

___

19X8

£m

225

___

233

___

101

___

163

___

171

___

ADVANCED FINANCIAL MANAGEMENT (P4) – STUDY QUESTION BANK

Long-term liabilities

11 % convertible debenture

19X20-24 (note 1) 17

4% deep discount loan stock (note 2) –

___

	17
	___
Shareholders’ funds
Called up share capital (50p)	25
Share premium	30
Retained earnings	46
	___

118

___

17	17	17
–	30	30
___	___	___
17	47	47
___	___	___
30	30	30
60	–	–
58	72	94
___	___	___
165	149	171
___	___	___

Note 1 – Each £100 debenture is convertible into 12.6 ordinary shares in any year up to 19X20. The conversion rate has been adjusted for a rights issue in 19X6.

Note 2 – Redeemable at a total cost of £60 million in 19X14 (at face value £100).

	19X5	19X6	19X7	19X8
Average share price	300p	350p	440p	520p
Average earnings yield of the industry	12%	11%	14%	12.5%

Additional notes:

(i)The company’s activities (except for import/export) are entirely within the United Kingdom.

(ii)A 1 for 5 rights issue was made in 19X6.

(iii)The company made an acquisition in 19X7 costing £80 million. The book value of the tangible assets acquired was £20 million.

(iv)The directors estimate that the current market value of tangible fixed assets is £315 million.

Required:

(a)Appraise the financial health of Twello plc, commenting upon any possible financial

weaknesses.

(13 marks)

(b)What other information would be useful in your assessment of the company’s financial

health?

(5 marks)

(c)What are the advantages of deep discount bonds?

If ordinary debentures have a redemption yield of 12% per year evaluate whether a second deep discount bond on the same terms as Twello’s existing deep discount bond is

likely to be attractive to investors. Assume that interest is payable annually. Taxation

may be ignored in your evaluation.	(7 marks)
	(25 marks)

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17	17	17
–	30	30
___	___	___
17	47	47
___	___	___
30	30	30
60	–	–
58	72	94
___	___	___
165	149	171
___	___	___

17	17	17
–	30	30
___	___	___
17	47	47
___	___	___
30	30	30
60	–	–
58	72	94
___	___	___
165	149	171
___	___	___

17	17	17
–	30	30
___	___	___
17	47	47
___	___	___
30	30	30
60	–	–
58	72	94
___	___	___
165	149	171
___	___	___