Help Excel Afm

Investment Side
Rs''000''
Years 0 1 2 3 4
Units 1300 1820 2548 2675.4
selling price 2500 2575 2652.25 2731.818
Sales 3250 4687 6758 7309

Variable cost 1560 2359 3566 4044
Fixed Cost 1000 1050 1103 1158
Depreciation 650 650 650 650
Profit 40 628 1439 1457
Tax @ 25% -10 -157 -360 -364
Depreciation 0 650 650 650 650
Working capital change -487.5 -215.475 -310.715 -82.61573 1096.306
Investment -14000
Sale proceeds 16000
Net cashflows -14487.5 464.525 810.1201 1646.671 18838.91
10% 1 0.909091 0.826446 0.751315 0.683013
Pv -14487.5 422.2955 669.5207 1237.168 12867.23 708.7098
Base Case NPV
0 1 2 3 4
variable cost 1200 1296 1399.68 1511.654
Years 0 1 2 3 4
Sales 0 3250 4686.5 6757.933 7308.705
Working capital req 487.5 702.975 1013.69 1096.306 0
Working capital chan -487.5 -215.475 -310.715 -82.61573 1096.306
Francs ''000''
Years 0 1 2 3
Sales - 658,560 735,120 785,040
Local Costs - 338,000 388,700 427,570
Fixed Cost @ inflation 50,000 57,500 63,250
German component - 41,160 47,323 52,053
Capital allowance - 145,000 108,750 81,563
Taxable Profit 84,400 132,847 160,604
tax @ 20% (16,880) (26,569) (32,121)
Capital allowance - 145,000 108,750 81,563
working capital change (170,000) (34,000) (30,600) (23,460)
Investments (580,000)
Disposal proceeds
Net cash flows (750,000) 178,520 184,427 186,586
Francs/gbp 37 43 48 52
GBP ''000''
Remittance (20,353) 4,118 3,810 3,609
Additional Tax 10% 0 195 274 311
Net cashflows (20,353) 3,923 3,536 3,299
15% 1.000 0.870 0.756 0.658
PV (20,353) 3,411 2,674 2,169
NPV (5,933)
UK Company
CLOSE DOWN
Redundancy cost ( 1- T) 24500
sale proceeds 20000
Net LOSS -4500
DOWNSIZE
Closure cost ( 1 - T ) 14000
sale proceeds 10,000
Net cost -4,000
Pre tax contribution 2856 2970.52 3059.6356
12% 1 0.89285714285714 0.79719387755102 0.711780247813411
PV -4000 2550 2368.08035714286 2177.78818558673
PV 5098.65589197
Years 0 1 2 3
Francs/gbp 36.85 43.3529411764706 48.4037692747002 51.6933458273497
Francs/EUR 23.32 27.44 30.63 32.71
Sales 658560 735120 785040
Local Costs 338000 388700 427570
German component 41160 47323.35 52053.0585
WDV 580000
Capital allowance 145000 108750 81562.5
working capital require 170000 204000 234600 258060

working capital change -170000 -34000 -30600 -23460
Years 0 1 2 3
Taxable Profit 0 84400 132847 160604
Francs/gbp 37 43 48 52
Profit in GBP 1947 2745 3107
Additional Tax 10% 194.681139755767 274.455175682851 310.68687648194
BLOCKED REMITTANCE
If there is no block remiitance
Years 0 1 2 3
Remittance 4118 3810 3609
15% 0.86956521739131 0.756143667296787 0.657516232431988
PV 3580.72090142175 2881.04732718425 2373.29112211401
total PV 15188
IF there is restrictions
Net cash flows 178520 184427.32 186586.0532
reinvestment 1.3915 1.21 1.1
cashflows at 4th year end 248410.58 223157.0572 205244.65852
exchange rate
Remittance
DF @ 15%
PV
IF there is no restriction PV 15188

IF there is restriction PV 13367
LOSS in NPV 1821
4
838,560
470,327
69,575
57,270
61,172
180,216
(36,043)
61,172
258,060
150,000
613,405
55
11,111
326 0
10,785
0.572
6,166
3151.424668
0.635518078404831
2002.78734924494
4 0
55.2064858350337
34.94
838560
470327
57269.82207
61171.875
258060
4 0
180216
55
3264
326.44045387804
4
11111
0.571753245593033
6352.80886021541
613404.917344
1
613404.917344
1290217.213064
55.21
23369.2666738634
0.572
13367.2205374499
'$000''
Years 1 2 3
Revenue @ 9% 5450 5940.5 6475.145
Cost of sales @ 9% 3270 3564.3 3885.087
Gross Profit 2180 2376.2 2590.058 year 1
Operating expenses O/B of assets 1266
Variable cost @ 15% of sales 818 891 971 Additions 79
Fixed cost @ 6% 1060 1124 1191 C/B of assets 1345
Depreciation 135 144 155 Depreciation 134.5
Operating profit 168 218 273
interest 74 74 74
PBT 93 143 199
tax @ 30% -15 -28 -43
Depreciation 135 144 155
working capital change -20 -21 -24
Capex -79 -95 -114
FCFE 114 143 173

2 3
1345 1440
95 114
1440 1554
144 155.4
'$000" '$000" '$000" '$000"
Year 0 1 2
Ticket and other inflows
Adult revenue (15000*40%*18*360*1.03^2),onwards inflation 41247.79
Child Revenue (15000*60%*10*360*1.03^2),onwards inflation 34373.16
food profit 15000*8*360*30%*1.03^2,onwards inflation 13749.26
gift profit 15000*5*360*40%*1.03^2,onwards inflation 11457.72
less
Maintenance cost 15000
staff cost 42436
insurance 2121.8
Capital allowances 62500
Taxable profit -21229.86
tax 30% 6368.959
Capital allowances 0 0 0 62500
working capital ch 0 0 -51500 -1545
investment -200000 -200000
scrap value
Net cashflows -200000 -251500 46094.1
11% 1 0.900901 0.811622
PV -200000 -226577 37411
NPV -121700
Year Capital allowance

2 62500
3 46875
4 35156
5 26367
Year 0 1 2
working capital requirement 51500 53045
working capital change -51500 -1545
'$000" '$000" '$000"
3 4 5
42485.23 43759.78 45072.58

35404.35 36466.49 37560.48
14161.74 14586.59 15024.19
11801.45 12155.5 12520.16
19000 23000 27000

43709.08 45020.35 46370.96
2185.454 2251.018 2318.548
46875 35156 26367
-7916.76 1540.737 8120.709
2375.028 -462.2212 -2436.213
46875 35156.25 26367.19
-1591.35 -1639.091 56275.44
275000
39741.92 34595.68 363327.1
0.731191 0.658731 0.593451
29058.95 22789.24 215617
3 4 5
54636.35 56275.44
-1591 -1639 56275
'$000'' '$000'' '$000'' '$000'' '$000'' '$000'' '$000''
Years 0 1 2 3 4 5
Adult ticket revenue 41247.79 42485.23 43759.78 45072.58
childern ticket revenue 34373.16 35404.35 36466.49 37560.48
food profit 13749.26 14161.74 14586.59 15024.19
gift profit 11457.72 11801.45 12155.5 12520.16
Maintenance cost 15000 19000 23000 27000

Insurance cost 2121.8 2185.454 2251.018 2318.548
staff salary 42436 43709.08 45020.35 46370.96
capital allowance 62500 46875 35156 26367
Operating profit -21229.86 -7916.76 1540.987 8120.897
Tax 30% 6368.959 2375.028 -462.2962 -2436.269
capital allowance 0 0 62500 46875 35156 26367
working capital change 0 -51500 -1545 -1591.35 -1639.091 56275.44
investment -200000 -200000
disposal proceeds 275000
Net cash flows -200000 -251500 46094.1 39741.92 34595.6 363327.1
11% 1 0.900901 0.811622 0.731191 0.658731 0.593451
PV -200000 -226577 37411 29058.95 22789.19 215616.9
NPV (121,701)
Years 0 1 2 3 4 5
working capital requirement 51500 53045 54636.35 56275.44
working capital change -51500 -1545 -1591.35 -1639.091 56275.44
NEPTUNE
Investment Side
"$ m"
Years 0 1 2 3 4 5 6
Revenue 680 900 900 750 320
Direct cost @ 60% 408 540 540 450 192
contibution loss 150 150
capital allowance 400 160 96 58 46
Operating profits -278 50 264 242 82
Tax @ 30% 83.4 -15 -79.2 -72.6 -24.6
capital allowance 400 160 96 58 46 0
investment -800
scrap value 40
Net cashflows -800 122 293.4 345 220.8 95.4 -24.6
9% 1 0.917431 0.84168 0.772183 0.708425 0.649931 0.596267
pv -800 111.9266 246.9489 266.4033 156.4203 62.00345 -14.66818
Base case NPV 29.03438
Financing side
Funds required 800
Debt required 800
Debt raised 816.3265

Issuance cost 16.32653
Pv tax shield
tax savings 17.63265
Af @ 7.2% 3.804238
67.07881
investment side
Base case NPV 29.03438
Financing side
pv of tax shield 67.07881
APV 79.78666
Year WDV Capital allowance
1 800 400
2 400 160
3 240 96
4 144 57.6
5 86.4 46.4
ungear be of neptune
"YR million" "YR million" "YR million" "YR million" "YR million" "YR million"
Years 0 1 2 3 4
Revenue - 18,191.25 66,753.29 111,440.58 60,340.59
Variable cost 0 2920.68 10720.0639 17901.16666 9693.11391
Fixed cost @ YR inflation 5612 6436.964 7067.786472 7760.42955
Component cost 0 5195.526 19063.6092 31827.85933 17233.2507
Royalty YR 0 4323.6 4813.2 5130 5468.4
capital allowance 4500 4500 4500 4500
Taxable profit (4,360.56) 21,219.45 45,013.76 15,685.39
tax 40% (16,261.28) -6274.15689
capital allowance 0 4500 4500 4500 4500
Investment -39000
Net cashflows YR -48600 -1972.556 23997.787 31935.98176 28661.3984
exchange rate YR/$ 101.4 120.1 133.7 142.5 151.9
"$ million" "$ million" "$ million" "$ million" "$ million" "$ million"
Remittance (479.29) (16.42) 179.49 224.11 188.69
Royalty 36.00 36.00 36.00 36.00
Tax @ 20% (7.20) (7.20) (7.20) (7.20)
Contribution - 18.54 61.11 95.72 48.62
Tax @ 20% (3.71) (12.22) (19.14) (9.72)
Redundancy cost ( immaterial)
Net cashflows (479.29) 27.21 257.18 329.49 256.38
12% 1 0.89285714 0.79719388 0.711780248 0.63551808
PV (479.29) 24.29 205.02 234.52 162.94
NPV 147.48
YR 000''
Years 0 1 2 3 4
units 0.15 0.48 0.73 0.36
price @ eu inflation 735 771.75 802.62 834.7248

Exchange rate YR/€ 165 180.2 190.2 200.8
Revenue 18191.25 66753.288 111440.5765 60340.5863
Variable cost/unit @ YR inflation 19471.2 22333.4664 24522.14611 26925.3164

Variable cost 2920.68 10720.0639 17901.16666 9693.11391
component cost @ $ inflation 288.4 297.052 305.96356 315.142467

exchange rate YR/$ 120.1 133.7 142.5 151.9
Component cost 5195.526 19063.6092 31827.85933 17233.2507
Royalty $ 36 36 36 36
Royalty YR 4323.6 4813.2 5130 5468.4
working capital requirement 9600 11712 13433.664 14750.16307

contribution @ $ inflation 123.6 127.308 131.12724 135.061057

Contribution 18.54 61.10784 95.7228852 48.6219806
Tramont Co
Investment Side
GR "000"
Years 0 1 2 3
SALES - 48,891 94,855 214,450
Variable cost 0 16200 32373 75385
Component cost 0 4889 9770 22751
fixed cost @ 9% 30000 32700 35643
Depreciation 20000 20000 20000
Taxable profit (22,198) 12 60,671
Tax @ 20% - -7697
Depreciation 0 20000 20000 20000
Investment -230000
Disposal proceeds
Net cashflows -270000 -5798 16088 68697
Exchange rate GR/$ 55.00 58.20 61.59 65.18
Remittance -4909.09 -99.61 261.20 1053.92
DF @ 10% 1.00 0.91 0.83 0.75
PV -4909.09 -90.56 215.87 791.82
Base Case NPV 1921.80
Parent co Cash flows

Additional tax
Profit in $ (381.38) 0.20 930.79
tax 10% -54.96
contribution loss -560 -448 -358.4
contribution (1- 0.3 ) 0 33.60 63.45 139.61
net proceeds 600
Net cashflows 600 -526.4 -384.6 -273.7
7% 1 0.935 0.873 0.816
Pv 600 -491.96 -335.88 -223.46
Net Pv -634.29224
Financing Side
Funds Required 270000
Tax Shield
Tax savings on interest GR 3240 3240 3240
After tax interest savings on loan 15120 15120 15120
Total savings 18360 18360 18360
Exchange rate GR/$ 55 58.20 61.59 65.18
Savings in $ 315.44 298.08 281.67
Df 3% 0.971 0.943 0.915
PV 306.26 280.97 257.77
Pv of financing Side 1081.48
Base Case NPV 1,922

Parent co Cashflows (634)
Pv of financing Side 1,081
APV 2,369
APV Burung CO
International IA AVTO qs part a NPV
Reading Multinational operations
Reading Yilandwe part b ii Answer
Reading Tramont ( past b) Answer
Years 0 1 2 3
Exchange rate GR/$ 55 58.20 61.59 65.18
Units 12000 22000 47000

SALES 48,891 94,855 214,450
Variable cost/unit @ 9% 1350 1472 1604

Variable cost 16200 32373 75385
component cost / unit @ 3% 7 7.21 7.43

Component cost 4889 9770 22751
contribution per unit 4 4.12 4.24
contribution (1- 0.3 ) 33.6 63.45 139.61
working capital requirement 40000 43600 47524 51801.16
4
289,714
104897
31658
38850.87
20000
94,308
-18862
20000
51801
450000
597247
68.98
8658.34
0.68
5913.76
1,367.19
-136.72
-286.72
183.58
-239.9
0.763
-182.99
3240
15120
18360 0
68.98
266.17
0.888
236.49
4
68.98
60000
289,714
1748
104897
7.65
31658
4.37
183.58
51801
Fodder Value
$''000''
Years 1 2 3 4 5 onwards
Sales 17115 18142 19230 20384
PBIT @ 32% 5477 5805 6154 6523
Tax @ 28% -1533 -1625 -1723 -1826
Additional Capex 213 226 239 254
FCFF 3730 3954 4191 4443
WACC @ 13% 0.884956 0.783147 0.69305 0.613319
PV 3301 3096 2905 2725 28053
MV of business 40080
Sales Growth
WACC % WACC
KE 13.68% 0.9 0.12312
KD 6.48% 0.1 0.00648
13%
Combine VALUE
$''000''
Combine sales 51952 54965.22 58153.2 61526.08
PBIT @ 30% 15586 16490 17446 18458
tax @ 28% 4364 4617 4885 5168
CAPEX 513 542 574 607
FCFF 10709 11330 11987 12683
wacc @ 9% 0.917431 0.84168 0.772183 0.708425
PV 9824.433 9536.325 9256.36 8984.613 151567
MV 189168.7
Synergy 9088.731
Combine WACC
Investment Side
'$m" '$m" '$m" '$m" '$m" '$m"
Years 0 1 2 3 4 5 6
Revenue 680 900 900 750 320
Direct cost 408 540 540 450 192
Contribution loss 150 150
Tax allowable depr 0 400 160 96 57.6 46.4
Tax allowable profit -278 50 264 242.4 81.6
Tax @ 30% 83.4 -15 -79.2 -72.72 -24.48
Tax allowable depr 0 400 160 96 57.6 46.4
Investment Side -800
Realizable value 40
Net cashflows -800 122 293.4 345 220.8 95.28 -24.48
9% 1 0.917431 0.84168 0.77218348006 0.708425 0.649931 0.59627
Pv -800 111.9266 246.9489 266.403300621 156.4203 61.92546 -14.5966
NPV 29.02794
pv of all cashflows $829.03

investment -800
NPV $29.03
Financing Side
$m
funds Required 800 $m
Debt required 800 Base case NPV 29.02794
Financing side
Debt Raised 816.3265 issuance cost 16.32653
issuance cost 16.32653 Pv of tax shield 67.07881
APV 79.78022
Pv of tax savings
Tax savings 17.63265
A.f @ 7.2% 3.804238
Pv of tax shield 67.07881
MIRR
MIRR
Pv of return phase 829.0279
Pv of investment 800
MIRR 9.65%
MIRR 9.64%
Workings
Years 0 1 2 3 4 5
WDV 800 400 240 144 86.4
Tax allowable depreciation 400 160 96 57.6 46.4
Ungeared Ke
ungear beta equity of neptune co
Equity 7500
Debt 2500
Beta equity 1.4
Beta Asset 1.13513513513514
Rf 5%
equity risk premium 3.50%
Kung 9%
Years 1 2 3 4 5
'$000'' '$000'' '$000'' '$000'' '$000''
Sales @ 8% 64800
Material @ 8% 12960
Labour @ 8% 23760
Other Cost @ 8% 4320
Management Fee @ 8% 12000
Operating Profit 11760 12700.8 13716.86 14814.21 15999.35
Interest 5850 5580 5310 5040 4770
Profit before tax 5910 7120.8 8406.864 9774.213 11229.35
Tax @ 25% -1477.5 -1780.2 -2101.716 -2443.553 -2807.338
Profit after tax 4432.5 5340.6 6305.148 7330.66 8422.013
dividend @ 25% 1108.125 1335.15 1576.287 1832.665 2105.503
Retained earnings 3324.375 4005.45 4728.861 5497.995 6316.509
opening balance 16000 19324.38 23329.83 28058.69 33556.68
clsoing equity balance 19324.38 23329.83 28058.69 33556.68 39873.19
Debt 62000 59000 56000 53000 50000
Debt/Equity ratio 321% 253% 200% 158% 125%

Covenants 350% 250% 200% 150% 125%
Years 1 2 3 4
'$000'' '$000'' '$000'' '$000''
EBIT 13542 15031.62 16685.1 18520.46
Interest
Convertible loan 1200 1200 1200 1200
Amortized loan 2400 1867.36 1292.109 670.8375
PBT 9942 11964.26 14192.99 16649.62
PAT @80% 7953.6 9571.408 11354.39 13319.7
Dividend @ 25% 1988.4 2392.852 2838.598 3329.924
Retain earnings 5965.2 7178.556 8515.794 9989.773
o/b Equity 10,000 15,965 23,144 31,660
c/b Equity 15,965 23,144 31,660 41,649
Debt
Amortized Debt 23342 16151.36 8385.469 0
convertible 20000 20000 20000 20000
Total Debt 43342 36151.36 28385.47 20000
Debt/(debt + euity) 73% 61% 47% 32%
Year 1 2 3 4
opening balance 30000 23342 16151.36 8385.469
interest 2400 1867.36 1292.109 670.8375
payment 9058 9058 9058 9058
clsoing balance 23342 16151.36 8385.469 -1.693696
Payment
'$000'' '$000'' '$000'' '$000'' '$000'' '$000'' working
Years 0 1 2 3 4 Years
Units(000) 132.5 159 206.7 206.7 WDV
Tax Depreciation
Sales Revenue 13250 16695 22788.68 23928.11
Variable cost 5787.6 7292.376 9954.093 10451.8
Fixed Cost 900 945 992.25 1041.863
marketing expense 1500 Years
Tax Depreciatio 0 3200 2560 2048 8192
Taxable profit 1862.4 5897.624 9794.332 4242.448 1
Tax 25% -465.6 -1474.406 -2448.583 -1060.612 2
Tax Depreciation 3200 2560 2048 8192 3
working capital -1025 -41 -53.3 -55.965 1175.265 4
investment -16000
Net cashflows -17025 4555.8 6929.918 9337.784 12549.1
11% 1 0.900901 0.811622 0.731191 0.658731 working ca
PV -17025 4104.324 5624.477 6827.707 8266.482 working ca
NPV 7797.98998
PV of all inflows $24,822.99

Investment -17025
NPV $7,797.99
Duration
Pv of inflows 4104.324 5624.477 6827.707 8266.482
sum of all PV 24822.99
proportion of each year 0.165344 0.226583 0.275056 0.333017
Weighted average years 0.165344 0.453167 0.825167 1.332069
Duration 2.78
'$000''
0 1 2 3 4
16000 12800 10240 8192
Tax Depreciation 3200 2560 2048 8192
Tax depreciation
3200
2560
2048
8192
1025 1066 1119.3 1175.265

-1025 -41 -53.3 -55.965 1175.265
Part a
Current WACC
Current KE 12.200% Kd 3.76%
Rf 3.80% Rf 3.80%
current Be 1.2 Spread 0.90%
Risk premium 7%
Mv of equity 360000 MV of debt 126432

Shares (000) 125000 bonds 1200
share price 2.88 Mv /bond 105.36
"000" %
Mv of equity 360000 12.200% 43920
MV of debt 126432 3.76% 4753.843
486432 48673.84
WACC 10.01%
Workings
Years Cashflows 4.70% PV
1 to 4 6.2 3.571 22.1402 when will calculate MV of debt by discounting at YTM
4 100 0.8322 83.22
MV/Bond 105.3602
Director 1 proposal
Ungear the current BE
Be 1.2
MV of Equity 360000
MV of debt 126432
Total Ba 0.936797
Ba of repair & maintenance 0.65

Proportion of Repiar Division 30%
Proportion of Travel division 70% Ytm 4.40%

Ba of travel division 1.064286 Rf 3.80%
Spread of A2 0.60%
Regear it with current gearing Mv of debt
Mv of equity 360000 Years Cashflows 4.40%
Mv of debt 25553.9 1 to 4 6.2 3.5959
4 100 0.8418
Be 1.124723
Ke 11.67%
% Cost
Mv of equity 360000 11.67% 42023.01
Mv of debt 25553.9 3.52% 899.4973
385553.9 42922.51
WACC 11.13%
Director 2 Proposal
New Be 1.21
KE 12.27%
Kd 6.20%
4.96%
% Cost
Mv of equity 360000 12.27% 44172
MV of debt 190000 4.96% 9424
550000 53596
WACC 9.74%
assumption Coupon 6.2% is equivalent to the Ytm 6.2%, there is no need to calculate MV as Mv is equal to pa
discounting at YTM
PV
22.29458
84.18
106.4746
ulate MV as Mv is equal to par
Blipton
Part a,b
'₤000'' '₤'₤000'' '₤000'' '₤000'' '₤000'' '₤000'' '₤000''
Years 0 1 2 3 4 5 6
Contribution 0 0 1840.695 2358.39 4351.23 2973.341 3047.674
Fixed cost 1786.063 1830.714 1876.482 1923.394 1971.479
Tax depreciation 0 3100 1033.333 1033.333 1033.333 0 0
Profit -3100 -978.7008 -505.6569 1441.415 1049.947 1076.195
Tax @ 30% 930 293.6103 151.6971 -432.4246 -314.984 -322.8586
Depreciation 3100 1033.333 1033.333 1033.333 0 0
Investment -6200
Scarp value 8915.309
Net cashflows -5270 348.2428 679.3735 2042.324 734.9628 9668.646
Exchange rate $/₤ 1.5259902 1.560232 1.595242 1.631038 1.667637 1.705057
Home currency Cashflows 0 -8041.9686 543.3395 1083.765 3331.107 1225.651 16485.59
Discount factor 0.9157509 0.8386 0.767948 0.70325 0.644001 0.589745

PV -7364.4401 455.6443 832.2758 2342.6 789.3209 9722.292
NPV 6777.6927
NPV $6,777.69
MIRR 21.59%
PV of inflows $6,777.69
Investment in year 0 0
NPV $6,777.69
working ₤
variable cost 30
Room revenue 60
Contribution 30
Years 0 1 2 3 4 5 6
Occupancy ratio 0.4 0.5 0.9 0.6 0.6
Contribution 1840.695 2358.39 4351.23 2973.341 3047.674
Tax depreciation
Year 1 2 3 4
WDV 6200
Tax depreciation 3100 1033.333 1033.333 1033.333
Residual value 10306.94

Repain expense 1391.632
Net residual value 8915.309
Real COC 4.20%

Inflation 4.80%
MONEY COC 9.20%
ba
Debt
equity
Be
Part c(i)
Mv of Opao Co $m
shares 2000
MV/share 2.5
5000
Mv of tai co $m
PBIT 132
tax @ 20% -26.4
depreciation 27.4
capex and working capital -24.3
Free cash flows to firm 108.7
growth 3%
COC 11%
MV of business 1399.513
Mv of debt 400
Mv of tai co 999.5125
Mv of combine co $m
Sales 7351 7720.02 8107.565 8514.565
PBIT @15.4% 1132.054 1188.883 1248.565 1311.243
tax @ 20% -226.41 -237.78 -249.71 -262.25
additional capex -109.00 -114.40 -120.14 -126.17
Free cashflows 796.64 836.71 878.71 922.82 12433.85
Coc @ 10% 0.909091 0.826446 0.751315 0.683013 0.683013
PV 724.2211 691.4961 660.1901 630.3015 8492.484
MV of combine business 11198.69
Mv of equity @ 60% 6719.216
synergy 719.7031
Part a ( ii)
Cash offer
Pre-Acq Data Post-Acq Data
shares MV/share total mv shares MV/share total mv
Opao co 2000 2.5 5000 2000 5562.016
TAI co 263 3.800428 999.5125 1157.2
5999.513 6719.216
Share offer
Opao co 2000 2.5 5000 2000 2.660135 5320.27
TAI co 263 3.80043 999.513 525.8945 2.660135 1398.95
5999.513 6719.22
Share exchange ratio 2.0
MIx offer
Opao co 2000 2.5 5000 2000
TAI co 263 3.80043 999.513
5999.513 549.67
263 683.8
1233.47
combine va 6719.22
1.5
60
40
3.075
Keg 15%
kd 5%
d 40
e 100
tax 30%
Keung 15%=x+(x-5%)+40/100*0.7
15%=x+0.28x-1.4
16.4%=1.28x
12.8125
Gain/Loss %gain
562.0156 11.24%
cash paid 157.6875 15.78%
719.7031
Gain/Loss %gain
320.2696 6.41%
399.4374 39.96%
719.707
Gain/Loss %gain
485.75 9.72%
233.957 23.41%
Cash paid
share offer
719.707
part a
Rf 4% Kd
beta 1.1 rf 4%
Risk premium 6% BBB spread 0.90%
Ke 10.600% YTM 4.900%
Kd 3.92%
Mv of equity "$000"
FCFE 2600 Mv of debt
growth 4.2400% years 1 2
Retention ratio 40% cashflows 5.2 5.2
MV $100.82
MV 42613.8364779874 Total MV $42,343.77
WACC $m %
Equity 42613.8365 10.600% 4517.06667
Debt $42,343.77 3.92% $1,659.88
84957.6097 6176.94258
WACC 7.27%
after implementing the proposal
KE Kd
Current Be 1.1 Rf 4%
ungear be and calculate ba A+ spread 0.60%
Current total ba 0.61 YTM 4.600%
Ba property 0.4 KD 3.68%
hotel service 60%
Hotel property 40% MV
Years 1 2
Ba servise 0.754728761745283 Cash flows 5.2 5.2
regear ba using current gearing MV $101.65
equity 42613.84
Debt $12,807.43 Total MV $12,807.43
Be 0.94
Rf 4%
ERP 6%
Ke 9.62%
$m %
Equity 42613.84 9.62% 4098.241
Debt $12,807.43 3.68% $471.31
55421.27 4569.555
WACC 8.25%
Before After
KE 10.600% 9.62%
WACC 7.27% 8.25%
3
105.2
3
105.2
Lurgshall
Part a
FRA rate 5.38%
Future Effective rate 5.36%
Option on Future
Borrowing Amount (m) 84
Put Option
September Contract closing future
Strike rate 95.25 4.75% Spot 4.50%
Number of contracts 84 Future rate 4.95%
Option Premium 172620
172620
Closing spot 5.10%
Decide to exercise the option Closing future 5.1900%
Strike rate 4.75%
Closing future rate (w) 5.19%
Gain 0.44%
44 ticks
Gain 184,800
Borrow from market 5.60% 2,352,000

Gain on option 0.44% 184,800
Premium 0.41% 172,620
Effective Interest 5.57% 2,339,820
5.57%
Interest rate Swap

Fixed rate Floating rate
Lurgshall 5.60% L+0.5% L+6.6%
Counterpart 6.10% L+1.5% L+7.1%
Savings 0.50%
Lurgshall will borrow at floating L+0.5%
Counterpart will borrow at Fixed rate of 6.1%
Distribute the savings

Lurgshall 0.25%
Counterpart 0.25%
Net savings Cost Net savings
Lurgshall 0.25% 0.10% 0.15%
Counterpart 0.25% 0.10% 0.15%
After Swap cost

Lurgshall 5.6%-0.15% 5.45%
Counterpart L+1.5%-0.15% L+1.35%
Lurgshall Conterpart
Borrow from bank (L+0.5%) -6.10%
Receive L 4.85%
Pay -4.85% (L)
cost before fee 5.35% L+1.25%
Fee 0.10% 0.10%
After Swap Cost 5.45% L+1.35%
95.05
Part a
Forward m
Expected receipt $ 20
Forward rate $/€ 1.3623
Expected receipt EUR 14.6810540997
Future contract
Buy eur future
5 month expiry $/€ 1.3698
contracts 116.8053730472 117 approximately
lock-in rate 1.3682
Expected receipt EUR 14.6177459436
Option contract
Buy eur call option
5 month expiry
strike rate USD/EUR 1.36 1.38
contracts 117.6470588235 118 115.9420289855 116
premium cost USD 413000 323350

premium cost EUR 304011.777696 238019.874862
It is assumed that option will be exercised

Eur EUR
Receipt 14750000 14500000
buy shortfall at fwd rate 44156.60877245 7359.434795408
Premium 304011.777696 238019.874862
Net receipt 14,401,831.61 14,254,620.69
workings
payment to exchange 20060000 20010000
Actual receipts 20000000 20000000
shortfall 60000 10000
Option contract
Buy eur call option
5 month expiry
strike rate USD/EUR 1.36 1.38
contracts 117.6470588235 117 115.9420289855 115
premium cost USD 409500 320562.5

premium cost EUR 301435.4066986 235967.979389

Eur EUR
Receipt 14625000 14375000
sell unhedged amount at fwd 80745.79754826 119283.5645599
Premium 301435.4066986 235967.979389
Net receipt 14,404,310.39 14,258,315.59
unhedged amount usd 110000 162500
part b
invest at t-bill rate
after 6 month receipts EUR 14.72509726198
funds required after 6 months MSH million 2640

exchange rate after 6 months 120.9005964215
current spot rate MSH/Eur 116
MAZABIA inflation 9.70%
Eur inflation 1.20%
funds required in eur after 6 months 21.83612056633

loan required EUR 7.111023304343
part c
Years 0 1 2 3
Reciepts in MSH (million) 1500 1500 1500
Exchange rate MSH/EUR 144.4918 156.6506 169.8325755094
Receipts in EUR 10.38121 9.575449 8.832227830856
Pv of receipts $23.19
outflow 21.83612056633
NPV $1.35
part b
Forward rate Agreement
Effective rate in FRA 7.1% Fra rate + spread
whether interest rate rises or falls, effective interest rate using FRA will
Effective cost GBP (M) 0.5325
Interest rate Future
Amount of borrowing ( m) 45
Sell future
june future 95.55 4.45
contracts 60
If interest rate moves to 4.50% 3.50%
% Amount %
gain/loss
opening future 4.45 4.45
closing future 4.628571 3.628571
gain/loss 0.178571 13,393 -0.821429
Actual Borrowing from market 5.75 431,250 4.75

Gain 0.178571 13,393 -0.821429
Effective Cost 5.571429 417,857 5.57
Option on future
Amount of borrowing ( m) 45
Put option
contracts 60
if interest rate moves to 4.50%

strike rate 95.5 96
4.5 4
premium cost 0.165 0.71
12375 53250
Decide to exercise option or not
strike rate 4.5 4
closing future 4.63 4.63
gain 0.13 0.63
9642.86 47142.86
% %
Actual borrowing from market 5.75 5.75
Gain on option 0.13 0.63
Option premium 0.17 0.71
Effective cost 5.79 5.83
Collar for borrower % %
Buy put option 4.5 pay premium 0.165
Sell call option 4 Receive 0.07
Net cost 0.095
compare Collar with closing future rate

closing future rate 4.63 3.63
Put option will be exercised Gain 0.13 call will be exercised loss -0.37
% %
Actual borrowing from market 5.75 4.75
gain/loss 0.13 -0.37
net premium 0.095 0.095
effective cost 5.72 5.22
e interest rate using FRA will be same at 7.1%
Amount
(61,607)
356,250
(61,607)
417,857
3.50%
95.5 96
4.5 4
0.165 0.71
12375 53250
4.5 4
3.63 3.63
- -
% %
4.75 4.75
0.17 0.71
4.92 5.46
part b
USD/GBP CAD/GBP JPY/GBP
Mid spot rate 1.5950 1.57 265.5
list of transaction
Payemnt Read down
GBP 'mio' Lakama (usd) Kenduri(gbp) Jaia( cad) Gochiso(jpy) Total receipts
Lakama (usd) 2.8213166144 0.940439 0.8777429467 4.639498
Receipts Kenduri(gbp) 1.31661442 2.165605 3.48222
Read across Jaia( cad) 0.7006369427 2.0382165605 2.738854
Gochiso(jpy) 1.20527307 1.205273
Total payements 2.52188749 3.5219535571 3.106044 2.9159595072
Total receipts 4.639498433 3.4822195156 2.738854 1.2052730697
Net Receipts/(payment) 2.117610943 -0.039734041 -0.36719 -1.710686438
Total receipts
part a (i)
NPV Chi Project
$m $m $m $m $m $m
Year 1 2 3 4 5
Total contribution 0 15 16.07 17.21 18.43
Fixed Cost 3% inflation 8.7 8.96 9.23 9.51
Tax Depreciation 2.4 2.4 2.4 4.8
Taxable profits 3.9 4.7 5.58 4.12

tax 20% -0.78 -0.94 -1.12 -0.82
Tax Depreciation 0 2.4 2.4 2.4 4.8
Investment -12
Net cashflows -12 5.52 6.16 6.86 8.1
NPV 7.03
part ii
12% 0.89 0.8 0.71 0.64 0.57
PV -10.71 4.4 4.39 4.36 4.59
20% chance of recession
60% of year (2-5) cashflows 10.64
80% chance no recession

Pv of all normal cashflows 17.74
Expected cashflows 16.32

NPV 5.61
Part iii $m
Annual Cashflows 3.43
Annuity factor years 2-8 at 12% 4.075
Pv of cashflows 13.98
pv of investment 10.71
NPV 3.27
part IV $m
Sell it now 4.3
go for approval
70% chance we ll get the approval 5.61
30% no approval 0.89
Expected NPV 4.19
Recommendation sell now to GEPE co
working
Year 1 2 3 4 5
Units 3000 3150 3307.5 3472.875
contribution/unit 5000 5100 5202 5306.04
Total contribution 15 16.07 17.21 18.43

part a
Adjusted Present value
Base Case NPV workings
$m $m $m $m $m $m $m $m $m
Years 0 1 2 3 4 Years 0 1
Post tax cashflows 28.5 36.7 44.4 50.9 working ca 6 6.48
working ca -6 -0.48 -0.39 -0.34 7.21 working ca -6 -0.48
investment -150 45
Net cahsfl -156 28.02 36.31 44.06 103.11 Ungeared KE
beta asset 1.14
PV of cash 150.85 Rf 4%
outflows -156 Rm 11%
Base case -5.15 Keung 11.98% 12.00%
bank loan
equal insta 21.14
Laon amou 70
annuity fa 3.312
YEars opening bainterest 8 payment Closing ba tax savings 4% PV

1 70 5.6 21.14 54.46 1.68 0.96 1.62
2 54.46 4.36 21.14 37.69 1.31 0.92 1.21
3 37.69 3.01 21.14 19.57 0.9 0.89 0.8
4 19.57 1.57 21.14 0 0.47 0.85 0.4
Pv of tax s 4.03
Subsidised loan
issuance co -2.47
Tax shield
tax savings 0.744
annuity fac 3.63
2.70072
Pv of interest savings
After tax i 2.744
annuity fac 3.63
9.96072
Base case -5.15

issuance co -2.47
Tax shield
BAnk loan 4.03
subsidised 2.7
pv of after 9.96072
Financing s 14.22
APV 9.07
$m $m $m
2 3 4
6.8688 7.21224
-0.39 -0.34 7.21
part a
Pa 28
Pe $m 24
S 0.25
r 0.05
t 2
D1 0.895623 ND1 0.814773

D2 0.54207 ND2 0.706115
Call Value 7.479585
Total NPV 11.47959

Talam crash course
furlion co using excel techniques
Megham in part b
Appendices
part a
Current Value of Nente Co FCFF ''$000''
FCFF 1180 PBIT 1230
G 2.06% Tax @ 20% -246
COC 11% Depreciation 1206
MV of Business 13471.01 Capex -1010
Mv of Debt 6500.00 FCFF 1180
MV of Equity 6971.01
shares 2400.00 latest PBIT 1230
MV/share 2.90 Earliest PBIT 970
Growth 8.24%
Future Growth 2.06%
shares
Mv/share
Total MVGain
% gain
_x000D_
Mije
10000.00
4.80
48000.00
10000.00
5.247
52470
4470.00
9.31%
_x000D_
Nente
2400 2.90
6960.00
Cash
paid7080
120.00
1.72%
_x000D_
12400
54960.00
59550
4590.00
_x000D_
Combine
value
_x000D_
Part b ''$000
Combine MV 59550
Combine earnings 3970
Group P/E 15
Earnings of MIJE 3200
Earnings of Nente 620
Cost based synergy 150
Share offer
Pre-Acq Info
shares Mv/share Total MV
Mije 10000 4.8 48000
Nente 2400 2.9 6960
12400 54960
Cash offer
Pre-Acq Info
shares Mv/share Total MV
Mije 10000 4.8 48000
Nente 2400 2.9 6960
12400 54960
Part C
Increase in value of follow on product
Conventional NPV
if we do not consider the delay option
''$000"
PV of inflows 2434
Pv of outflows 2029
405
Post Acq Info
shares Mv/share Total MV Gain % gain
10000 5.133621 51336.21 3336.207 6.95%
1600 5.133621 8213.793 1253.793 18.01%
11600 5.133621 59550 4590
Combine value
Post Acq Info

shares Mv/share Total MV Gain % gain
10000 5.247 52470 4470 9.31%
Cash paid 7080 120 1.72%
59550 4590
Combine value
if we consider to delay
Pa 2434
Pe 2500
t 2
S 0.42
r 0.032
D1 0.359691 ND1 0.640461

D2 -0.234279 ND2 0.407384
Call Value 603.5605
Current Mv 6971.007
Gain 8.66%
Part a
Spot Yields
Year 1 Valuation of Bond
Bond 1 104=9+100/1+r AA rating
Spot Yield 4.81% Year
Year 2 Cash flows
Bond 2 102=7/1.0481+107/(1+r)^2 Discount factors
Spot Yield 5.95% PV
MV
Year 3
Bond 3 98=6/1.0481+6/1.0595^2+106/(1+r)^3 Year
6.83% Cashflows
workings 5.72477064220183 YTM
5.34501992244821
86.93020943535
Spot Yield 6.83%
Year 1 2 3
Spot Yield 4.81% 5.95% 6.83%
Spread of AA 0.18% 0.31% 0.45% BBB rating
Discount factor 4.99% 6.26% 7.28% Year
Cash flows
Spread of BBB 0.54% 0.69% 0.86% Discount factors
Discpunt factor 5.35% 6.64% 7.69% PV
MV
Years
Cashflows
YTM
1 2 3
8 8 110
0.95 0.89 0.81
7.61994079892149 7.085299 89.0802
103.79
0 1 2 3
-103.79 8 8 110
7.17%
1 2 3
8 8 110
0.95 0.88 0.80
7.59390151293884 7.034894 88.06666
102.70
0 1 2 3
-102.70 8 8 110
7.58%
Part a
Expected Sale Price of EV club $m $m $m $m $m
Free Cash flows 390 419 455 490 7580.59
12% 0.8928571 0.797194 0.711780247813411 0.6355180784 0.635518
PV 348.21429 334.0242 323.860012755102 311.40385842 4817.602
MV 6135.1044
Pv of cashflows year 1-4 $1,317.50

Pv of cashflows after year 4 4817.6009
Mv $6,135.10
Sale Price $7,668.88
$m
Assets Adjuestment
Non-current assets 15621 -3790 3567
current assets 2347 7669 -3200 -3567
Total assets
Equity & liabilities

issued capital 1000
reserves 7917 3879
Non current liabilites

10% loan notes 3200 -3200
Other loan notes 2700
bank loan 985
current liabilities 2166
Total Equity and libilities
gain on sale 3879

current ratio 1.5
Current libilities 2166
Current asset 3249
Current forecast profit Revised Forecast Profit

Total EarningsEview Cinemas 454/0.4 1135 1135
less profit of eview club -454
add after tax interest 3200*10%*0.8 256
add return on current asset (3249-2347)*7%*0.8 50.512
add return on non-current asset 3567*12%*0.8 342.432
Total Earnings 1135 1329.944

shares 1000 1000
EPS 1.135 1.329944
WACC
Ba of cinemas 0.952 Regear this Ba 1.1056827475 ba=be x E/(E+D*(1-T))
Mv of equity 17325 Rf 4% Be=ba*(E+D(1-t))/E
MV /share 17.325 Rm 10% 1.11
Shares 1000 Ke 10.63%
Kd 6.40%
Mv of loan 3496
other loan notes 2511 MV $m Cost %
Bank loan 985 Mv of equity 17325 10.63%
Mv of loan 3496 6.40%
20821
Wacc
return on new asset 9.60%

return on ev club 11.98%
5 onwards
$m
New SOFP
15398
3249
18647
1000
11796
12796
0
2700
985
3685
2166
18647
Revised Forecast Profit
0.119789
ba=be x E/(E+D*(1-T))
Be=ba*(E+D(1-t))/E
1841.648
223.744
2065.392
9.92%
Part a)
Netting
Mid Spot rates

USD/GBP 1.4362
EUR/GBP 1.62835
HK$/GBP 11.20185
''GBP 000'' Payment Read Down

UK Spain HongKong USA
Receipts Read across UK 128.96 64.28 76.59
Spain 100 49.13
Hongkong 35.71
USA 299.4 73.69 26.78
Total PAyments -435.11 -202.66 -140.19 -76.59
Total Receipts 269.83 149.13 35.71 399.88
NEt Amount -165.28 -53.53 -104.48 323.29
USA co will receive 323.29 GBP from all other three companies
part b)
UK comapany Exposure
Receipts Payment Net Amount
HK$ 720000 400000 320000
US$ 110000 430000 -320000
EUR 210000 210000
Convert the pegged HK$ into USD 41004.55
Amount to be hedged
USD -278995.45
EUR 210000
Forward contract
FOR USD For EUR
forward rate USD/GBP 1.4285 Forward ra 1.6166
Expected Payment GBP -195306.58 Expected R 129902.3
Money MArket Hedge

FOR USD For EUR
Calculate Pv of FCY using Lending rate Calculate Pv of FCY using borrowing rate
lending rate 5.40% Borrowing 5.30%
PV -275279.18 PV 207253.9
Convert this Amount into HCY using SPot Convert this Amount into HCY using SPot
Spot USD/GBP 1.44 Spot EUR/ 1.63
HCY -191725.3 HCY 127212.1
Borrow HCY at hcy borrowing rate Invest HCY at hcy lending rate
HCY borrowing rate 6.90% HCY borrow 6%
Expected payment -195032.56 Expected 129120.2
Options
For USD
Amount to be hdged -278995.45
Option GBP put option
Settlement date Sep Contract
Exercise price USD/GBP 1.42 1.43 1.44
Contract -6.29 -6.24 -6.2
contracts ( whole number) 6 6 6
Premium 0.0215 0.0312 0.0435
USD 4031.25 5850 8156.25
Convert into HCY 2807.67 4074.38 5680.63
It is assumed that Option will be exercised
GBP GBP GBP
Exercise the option (payment) -187500 -187500 -187500
buy underhedge amount at forward -8922.26 -7609.69 0 -6297.13
premium -2807.67 -4074.38 0 -5680.63
Expected Payment -199229.93 -199184 -199478
1.43 is the best exercise as it has the lowest ans
working
Underhedge Amount USD -12745.45 -10870.45 0 -8995.45
receipt from exchange 266250

pay to suppleir -278995.45
-12745.45
Total Receipts
269.83
149.13
35.71
399.88
from all other three companies
sing borrowing rate
into HCY using SPot

cise as it has the lowest ans
Lammer Plc
Amount of currency to be hedged
$
Exports 490000
Import 1640000
Net import 1150000
Forward rate Money Market hedge

3 month rate 1.9066 Step 1 Pv of FCY at deposit rate
12 month rate 1.8901 Deposit rate
9 month diiference -0.0165 USD
2 month difference -0.003667
5 month forward rate 1.902933 step 2 Convert FCY into HCY
spot rate
Expected payment GBP 604330.2 GBP
step 3 Borrow this amount at HCY borrowing rate

borrowing rate
GBP
Future contract
Sell GBP future
december contract
rate 1.8986
Contracts 9.691352 9 contracts
Lock in rate 1.903457
expected payment 604163.9
Option contract
FCY payment 1150000
GBP Put option
Dec contract
Strike rate USD/GBP 1.88 1.9 1.92
Contracts 9.787234 9.684211 9.58333333333333
Whole contracts 9 9 9
Premium Cents/GBP 2.96 4.34 6.55

USD 16650 24412.5 36843.75
GBP 8691.794 12744.05 19233.529964502
it is assumed that option will be exercised

GBP GBP GBP
payment 562500 562500 562500
underhedge amount at forward rate 48609.25 42697.31 36785.3783376161
Premium 8691.794 12744.05 19233.529964502
Expected Payment 619801 617941.4 618518.908302118

2%
1140496
1.9156
595372.7
ount at HCY borrowing rate

5.50%
609016.6
Part a)
Interest rate SWAP
Step 1
Fixed rate Floating rate Possible swap structure
Fitsharris 4.60% Base rate +0.5% base rate +5.9%
Counterparty 4.80% base rate +1.3% base rate +5.3%
Savings 0.60%
Fitzharris will borrow at floating rate and counterpart will borrow at fixed rate
step 2 Step 3
Distribute the savings Calculate net savings
Fitsharris 0.30% Fitsharris 0.2500%
Counterparty 0.30% Counterparty 0.2500%
step 4
After Swap Cost
Fitsharris 4.6%-0.25% 4.35%
Counterparty base rate+1.3-0.25 base rate +1.05%
Swap structure
Fitzharris Counter party
Borrow from bank (base rate +0.5%) -4.80% step 1
Receive base rate 3.80%
pay -3.80% (base rate)
Before fee cost -4.30% ( base rate +1%)

Fee 0.05% -0.05%
After swap cost -4.35% ( base rate +1.05%) step 4
Collar Contract
step 1
Make the collar contract % %
Buy put option 95.75 4.25 Premium paid 0.211
Sell call option 96.25 3.75 Premium received 0.198
Net premium cost 0.013
step 2
Compare clsoing future with collar
clsoing future 4.19 3.39
none will be exercised call will be exercised
loss -0.36
Actual borrowing rate

clsoing spot + spread 4.600% 3.800%
Gain/loss on collar 0.36%
Premium 0.013% 0.013%
Effective interest 4.613% 4.173%
part a)
Forward rate Agreement
Company will select 4-9 5.02% FRA to hedge
Effective rate 5.02%-0.3% 4.72%

If interest rate rised by 1.1% or falls by 0.6%
Effective interest rate has been locked at 4.72%
If interest rates moves 5.30% 3.60%

Loss on forward -0.28%
Gain on forward 1.4200%
Actual LEnding ( Base rate - spread) 5.00% 3.30%
Effective rate 4.72% 4.72%
If interest rates moves 5.30% 3.60%

Interest rate Future % %
Lending Amount ( Dinar) 27000000
Buy Future
March contract 94.78 5.22%
contracts 90
Calculating Gain/Loss
Oepning future 94.78 5.22% 5.22%
Closing future (W) 5.6400% 3.9400%
Gain/loss -0.4200% 1.2800%
47,250 144,000
Actual LEnding ( Base rate - spread) 5.00% 3.30%
gain/loss -0.4200% 1.2800%
Effective Interest rate 4.5800% 4.5800%
closing future 5.6400% 3.9400%
Option Contract
If interest rate Moves 5.30%

Lending amount 27000000
March Call option
Exercise price 94.25 95.25 94.25
5.75% 4.75% 5.75%
Contracts 90
Premium Cost 0.545% 0.098% 0.545%

61312.5 11025 61312.5
Decide to exercise the option or not by
comparing with closing future
Strike rate 5.75% 4.75% 5.75%
Clsoing future 5.64% 5.64% 3.94%
Gain 0.11% - 1.81%
Actual Interest 5.00% 5.00% 3.30%

GAIN ON OPTION 0.11% 1.81%
Premiun 0.545% 0.098% 0.545%
Effective income 4.565% 4.902% 4.565%
3.60%
95.25
4.75%
0.098%
11025
4.75%
3.94%
0.81%
3.30%
0.81%
0.098%
4.012%
part a)
Pa 85
Pe 90
t 5
r 0.05
s 0.2
D1 0.654814 ND1 0.743706

D2 0.2076 ND2 0.582229
Call Value 22.40536

Value of all warrants 2240.536
dividend capacity
Var
Bond duration
Bond valuation
other small topics
Part b )
'$ m''
Next year Sales 324 Subsidiary
Operating profit 48.6 '$ m ''
tax @ 25% -12.15 Sales 24
working capital change -2.4 Variable cost -14.4
Capex -4.8 Fixed cost -4
-8 Profit before tax 5.6
Interest -2.625 Tax @ 20% -1.12
Free cash flows 18.625 PAT 4.48
Dividend received 3.29728
Additional tax (25%-20%) -0.28 Dividend 3.584
Dividend capacity 21.64228 withholding tax 8 -0.28672
Net Dividend 3.29728
additional tax -0.28

Part B
Amount of currency to be hedged $ 18,600,000
Forward contract 16,235,940

Forward rate EUR/USD 0.8729
Future Contract
Buy Eur Future
Sep contract USD/EUR 1.1422
No of contracts 81.42181754509 Say 81
Lock in rate 1.1431
Basis 0.0063
Remaining Basis 0.0009
Lock in rate 1.1431
Eur
Receipts in EURS 16,200,000
Sell un hedged amount at fwd rate 71,385.76
Total Receipts 16,271,385.76
In case if we ignore under/over hedging 16,271,539.84

Expected receipts in EUR
Option Contract
Eur Call option
strike rate USD/EUR 1.142
Sep contract
No of contracts 81.43607705779 say 81
Premium Cost in USD 124740

Premium Cost in EUR 108661.014

EUR
Receipts 16200000
sell unhedged amount at fwd 86,940.84
Premiun 108661.014
Net receipts 16,178,279.83
Part C
Initial Margin per contract 3500
Contracts 81
Total initi1l Margin 283,500
Maintenance margin 283,500
Buy at Opening future $/EUR 1.1422
1 march future rate $/EUR 1.141
Loss $ -19440
2nd March future rate $/EUR 1.1418

Gain 12960
3rd march future rate $/EUR 1.1433

gain 24300
working
spot rate Eur/USD 0.8707 0.8711
Spot rate USD/EUR 1.1480 1.1485
$
Payment to exchange 18,518,220
actual receipts 18,600,000
Unhedged Amount 81,780
Payment to exchange 18,500,400.00

Actual receipts 18,600,000.00
Unhedged Amount 99,600.00
part B)
Project Privi Drugi
NPV 2054000 2293000
IRR 17.60% 15.88%
MIRR 13.40% 13.97%
VAR
95% confidence level 1103500 1475805
90% confidence level 860000 1144867
Workings
Years 0 1 2 3 4 5
Cash flows -11840 1230 1680 4350 10240 2200
IRR 15.88%
MIRR 14%
Value at risk
Annual standard deviation 400000
probabilty level @ 5% 1.65
probabilty level @ 10% 1.28
VAR
95% confidence level 1475805
90% confidence level 1144867
part a)
Spot yield
Years 1 2 3 4 5
Spot yield % 3.20% 3.70% 4.20% 4.80% 5%
Spread
A 0.65% 0.76% 0.87% 1% 1.12%
MV of Bond
AA 98.71
A 97.177106
% change -1.55%
Years 1 2 3
Cahs flows 4 4 104
Discount rate 0.963 0.916 0.862
PV 3.8517092 3.665726 89.65967
MV 97.177106
part b
(i) (ii)
Year 1 2 3 4 5 Year
Cahs flows 5 5 5 5 105 Cashflows
Discount rate 0.9629273 0.916431 0.862112 0.7981 0.743043 Discount rate
Pv 4.8146365 4.582157 4.310561 3.9905 78.01949 PV
MV 95.717342 PV of all cashflows
Discount rate 4.28% MV=Pv of all cahsflows
100=4.28x+74.3043
4.28x=25.7
x
Coupon
(i) (ii)
Regular interest 5% Regular interest
Issued at 95.71 issued at
funds require m 150 funds require m
no of bonds (m) 1.5672344 no of bonds (m)
Tomorrow Class 9.00 AM pak time

0 1 2 3 4 5 5
x x x x x 100
0.962927 0.916431 0.862112 0.7981 0.743043 0.743043
0.96293x 0.91643x 0.86211x 0.7981x 0.74304x 74.30427
4.28x+74.3043
6.004673
6%
6%
100
150
1.5
Part a (i)
Forecast Dividend Capacity
'$000''
Forecast Sales 540800
Dr
Operating Profit @ 20% 108160
Tax @ 30% -32448
depreciation 30000 CR
Profit on disposal -5900 Cr
Working capital change -3120
Increase in Capex (w) -44800
Interest ( 1-T) -7560 Cr
Disposal proceeds 16300
Net Dividend received 20520
Additional tax -4500
Divdidend Capacity 76652
Part a (ii)
Required Dividend per share 0.74

No of shares 120000
Before right issue 90000
Right share 30000
Required Dividend 88800

Increase in Dividend Capacity 12148
current dividend from sub 20520

Total dividend received from sub Now 32668
Total Dividend Announced 34387.37
\
Pay out ratio 95.52%
closing future 5.64
closing future 3.94
closing future=closing spot+(opening future-current

5.64%
opening future
Actual closing future
Loss
Workings
'$000''
Openning balance of Assets 110000
Increase in capex 44800
NBV of disposed asset 10400

Depreciation for the year 30000
Closing balance of assets 114400
Disposal proceeds 16300

NBV of disposed asset 10400
Gain on Disposal 5900
Subisidiary Pre tax Profit 45000

Tax @ 20% -9000
PAT 36000
Dividend @60% 21600

withholding tax 1080
Net Dividend received 20520
Additional tax 4500

if interest rate rises
if interest rate falls
t+(opening future-current spot)*Rm/TM
5.22%
5.84%
-0.62%
69750
4.6800%
4.3800%
Part a
YTM of First Bond
Years 0 1 2 3 4 5
Cashflows -1079.68 60 60 60 60 1060
YTM 4.20%
Bond 1 Duration
Years 0 1 2 3 4 5
Cashflows 60 60 60 60 1060
Discount factor @ 4.2% 0.959693 0.92101 0.883887 0.84826 0.814069
PV 57.58157 55.26063 53.03323 50.89562 862.9135 1079.685
PV x Years 57.58157 110.5213 159.0997 203.5825 4314.568 4845.353
Duration 4.487748
Bond 2 Duration
Years 0 1 2 3 4 5
Cashflows 40 40 40 40 1040
Discount factor @ 4.2% 0.959693 0.92101 0.883887 0.84826 0.814069
PV 38.38772 36.84042 35.35549 33.93041 846.6321 991.1462
PV x Years 38.38772 73.68084 106.0665 135.7216 4233.161 4587.017
Duration 4.627993
Talam co
Part b (i)
Mark to Market
1-Jun Buy Future Contracts 50 95.84
2-Jun Future Price 95.76

Loss (10,000)

Loss (12,500)

Gain 10,000
Part a if interest rate increases by 0.8%

Future Contracts
Borrowing Amount 34,000,000
Sell Future
settlement date December
Future Contracts 95.84 4.16%
No of contracts 68
Opening future 4.16%

Closing future 4.5600%
Gain 0.4000%
68000
Borrowing in Market 5.10% 867,000

Gain 0.4000% 68,000
Effective rate 4.7000% 799,000
Option IF interest rate rises by 0.8%

Borrowing Amount 34,000,000
Put opton
settlement date December
Strike rate 95.5 4.50%
No of contracts 68
Premium 0.30% 51680
Decide to exercise the option
Strike rate 95.5 4.50% 0
closing future 4.5600%
Gain 0.0600% 10199.9999999999

Gain 0.0600% 10,200
Premiun 0.30% 51680.00
Effective rate 5.34400% 908,480.00
Collar contract
Borrower Case Strike rates Premium
Buy Put option 4.50% 0.304%
Sell Call option 4% 0.22%
Net Premium Cost 0.081% 13770
If interest rate rises by 0.8%

Compare Collar with closing future
Closing future 4.56%
Put option will be exercised
Gain 0.06% 10200

Gain 0.0600% 10,200
Premiun 0.08% 13770.00
Effective rate 5.12100% 870,570.00
Total Gain/Loss
(10,000)
Sell Future contracts 30 95.61
Future Price 95.66
Loss -3750 (16,250)
Future Price 95.74

Loss -6000 4,000
workings
Current spot 3.60%
increase in rate 0.80%
Closing spot 4.40%
96 4%
0.51% 86360
96 4% booked
4.5600% market
0.5600% 95200
5.10% 867,000
0.5600% 95200
0.51% 86360
5.04800% 858,160.00
Part b (i)
NPV of UWA Project
'$ 000''
Years 0 1 2 3 4
Sales Revenue 0 5160.0 24883.2 49828.6 38396.0
Variable cost 0 2064.0 9584.6 18482.4 13714.3
Fixed cost @ 10% 2700.0 2970.0 3267.0 3593.7
Traing cost 4128.0 5750.8 1848.2 1371.4
Tax depreciation 0 5250.0 5250.0 5250.0 12250.0
Taxable profit -8982.0 1327.8 20981.0 7466.5
Tax @ 20% 1796.4 -265.6 -4196.2 -1493.3
Working capital change -1032 -1972.3 -2494.5 1143.3 4355.6
Investment -35000 7000.0
Net cashflows -36032 -3907.9 3817.7 23178.0 29578.8
Df 1 0.901 0.812 0.731 0.659
PV -36032 -3520.649 3098.515 16947.59 19484.5
NPV -22.046335
Pv of future cashflows $36,009.95
Outflow -36032
NPV ($22.05)
part b (ii)
Honua offer
Pa 36.4320876
Pe 30
r 0.023
s 0.3
t 2
D1 0.779 Nd1 0.7821

D2 0.355 Nd2 0.6387
Call Value 10.1939767

Put Value 2.41314794
Real options $m
Jigu project 15.258
Honue offer 2.41
Total value of real options 17.668
Workings
'$ 000''
Years 0 1 2 3 4
Units 4300 19200 35600 25400
Selling price @ 8% inflation 1200 1296 1399.68 1511.654
Sales Revenue 5160 24883.2 49828.61 38396.02
Variable cost/ unit @ 4% 480 499.2 519.168 539.9347

Variable cost 2064 9584.64 18482.38 13714.34
Tax depreciation 5250 5250 5250 12250
Working capital
Working capital change -1032 -1972.32 -2494.541 1143.259 4355.602
Mehgam co
Put option
future cashflows 1
Discount rate 2
BSOP assumptions 3
volatilty same
perfect market
cannot exercise early as it is for europeon option
all commitments given in qs will be fullfiled
Partsea
Foreign Direct Investment
'$H m'' '$H m'' '$H m'' '$H m'' '$H m'' '$H m''
Years 0 1 2 3 4 5
Sales revenue 150.0 405.0 437.4 472.4 510.2
Variable cost 76.0 174.0 187.9 203.0 219.2
Fixed cost 23.0 40.0 40.0 40.0 40.0
Tax depreciation 17.0 17.0 17.0 17.0
Total component cost (H$) 0.0 50.7 52.1 53.6 55.1
Taxable profit 51.0 123.3 140.3 158.8 178.8
Tax @ 20% -10.2 -24.7 -28.1 -31.8 -35.8
Working capital change -35.0 -3.5 -3.1 -3.3 -3.6 0.0
Investment -120.0
building cost -70.0
Machine cost -68.2
Disposal value 150.0
Net cashflows -155.0 -100.9 112.6 126.0 140.5 310.1
' GBP m'' ' GBP m'' ' GBP m'' ' GBP m'' ' GBP m'' ' GBP m''
Years 0 1 2 3 4 5
exchange rate 15.8 17.04 17.87 18.73 19.64 20.60
Remittance -9.81 -5.92 6.30 6.72 7.15 15.06
Additonal tax 0.00 -0.30 -0.69 -0.75 -0.81 -0.87
Profit in GBP 0.000 0.000 0.496 0.487 0.478 0.468
After tax gaib on machine 0.7
After tax contribution loss -0.50 -0.51 -0.53 -0.55 -0.56
Net cashflows -9.81 -6.02 5.59 5.93 6.27 14.09
Pv of cashflows $14.00
Year 0 outflow -9.81
NPV $4.19
Workings
Year $H/GBP BT/GBP H$/BT
0 15.8 4.2 3.76
1 17.04 4.32 3.94
2 17.87 4.41 4.05
3 18.73 4.49 4.17
4 19.64 4.58 4.29
5 20.60 4.67 4.41
'$H m'' '$H m'' '$H m'' '$H m'' '$H m'' '$H m''
Years 0 1 2 3 4 5
Units 1 2.5 2.5 2.5 2.5
Selling price @ 8% 150 162 174.96 188.9568 204.0733
Sales revenue 150 405 437.4 472.392 510.1834
Variable cost 76 174 187.92 202.9536 219.1899
Tax depreciation M GBP M H$

Machine cost 4 68.16
Tax depreciation 17.03922
Component cost
purchase price BT 5
Total component cost (BT) 12.5 12.5 12.5 12.5
Exchange rate 4.05 4.17 4.29 4.41
Total component cost (H$) 50.67055 52.11828 53.60738 55.13902
Working capital requirement 35 38.5 41.58 44.9064 48.49891

Working capital change -35 -3.5 -3.08 -3.3264 -3.592512
Additional tax
Taxable profit 0 51 123.2894 140.3217 158.791 178.8145
Tax @ 10% -5.1 -12.32894 -14.03217 -15.8791 -17.88145
exchange rate 15.8 17.03922 17.86636 18.73366 19.64306 20.59661
Additonal tax -0.29931 -0.690065 -0.749035 -0.808382 -0.868174
Profit of Other subsidiary 0 3.13 3.13 3.13 3.13

After tax profit @70% BT 2.19 2.19 2.19 2.19
Exchange rate BT/GBP 4.41 4.49 4.58 4.67
Profit in GBP 0.496 0.487 0.478 0.468
Contribution loss -0.714 -0.73542 -0.757483 -0.780207 -0.803613
After tax contribution loss -0.4998 -0.514794 -0.530238 -0.546145 -0.562529
Beta 1.3
Rf 5%
RM 12%
KE 14.10%
Fuelit LTD
GAS FUELED POWER STATION
'$m''
YEARS 1 2 3 4 4 to 13 14 to 28 28
Revenue 800 800
labour cost 75 75
Gas purchases 500 500
Customer relations 5 5
sales & marketing 40 40
Other cash outlays 5 5
Tax depreciation 60
Taxable profit 115 175
Tax rate 30% -34.5 -52.5
Tax depreciation 60
redundancy cost -4
Demolishing cost -10 -25
Building cost -300 -300
Net cashflows -300 -300 -10 -4 140.5 122.5 -25
6% 0.943396 0.889996 0.839619 0.792094 6.179598 4.553365 0.19563
PV -283.0189 -266.9989 -8.396193 -3.168375 868.2335 557.7872 -4.890754
NPV 859.5475
Workings
KD 5.95%
KE 11.15%
Rf 4.50%
Rm 14%
Beta 0.7
Gearing 35%
WACC 9.33%
Inflation 3%
Real WACC 6.15%
Say= 6%
Ferhust uploaded
Morada in few days
Nuclear power
Tisa
Sleepon
Cigno CO
Part (i)
Valuation of Medical Research
$m $m $m $m
YEars 0 1 2
Sales 14980 15729 16515.45
Pbit @ 17.25% 2713.253 2848.915125
tax @ 22% -596.9156 -626.7613275
Capex (40% of change in sales) -299.6 -314.58
Free cash Flows 1816.737 1907.5737975
9% 0.917431 0.84167999326656
Pv 1666.731 1605.56670103527
Mv of MEdical research 31885.264
Mv of Manufacturing Business 5593.536

P/E of industry 8
Earnings of Manfacturing business 582.66
Pre tax profit 2490
Post Acq Business VAlue of Anatara 37478.8 Mv of Anatara Equity

Debt value 9000
Pre-acq Equity
Total synergy
35% premium to antara
Benefit to Cigno with out other benefits
Total Benefit to cigno with other benefits
Pv of Redundancies and tax benefits $5,479.77

$m
YEar 1 2 3
Benefits 1600 1664 1730.56
$m $m $m working
3 4 5 onwards Ungear beta of both companies
17341.22 18208.28 Antara Ba 0.68
2991.3605 3140.928 Cigno Ba 0.72368421
-658.0993 -691.0042 Cigno Be 1.1
-330.308 -346.824 Debt 40%
2002.9532 2103.1 36103.22 Equity 60%
0.7721835 0.708425 0.708425
1546.6473 1489.889 25576.43 MV
Cigno 36000
Antara 21000
57000
weighted Average Ba
Regear this ba using Cigno gearing
Debt 40%
Equity 60%
Be 1.072
28478.8 Cost of equity 11.80400%
Rf 4.30%
Equity risk premium 7%
21000
7478.8001 Combine KD 4.68%
7350
128.80008 Combine WACC using Cigno gearing 8.95%
$5,608.57 Debt 40%
Equity 60%
4
1799.7824
Ba
0.72 25920
0.68 14280
40200
0.705263
say 9%
Part a
Forecast Earning '$000'' '$000''
Current forecast earnings Proposal 1
Foreast earnings 26000 26000
Increase in interest Increase in interest
New loan -1000 New loan
Existing loan -280 Existing loan
Increase in Return
Final Earnings 26000 24720
Number of shares 120000 120000 Number of shares

Buy back shares -6250
Total shares 113750
EPS 0.216666666666667 EPS 0.217319 EPS
part b
Forecast SOFP '$000'' '$000''
Current forecast SOFP Proposal 1
Non-current assets 282000 282000
Current assets 66000 66000
Total Assets 348000 348000
Equity & liabilities

Share capital 48000 45500
Reserves 123000 104220
Total Equity 171000 149720
Non-Current liabilities 140000 160000

Current liabilities 37000 38280
Total liabilities 177000 198280
Total liabilities & capital 348000 348000
Gearing 45.02% 51.66%

Debt/( debt+Equity)
Discussion
First proposal is not recommended because it will increase the gearing
from 45% to 52% but there is only nominal increase in EPS
Third prosal is also not suitable because EPS will decrease from 21.67 c to 21.40 c
which will not encourage shareholders to accept this.
Second proposal is most suitable as EPS is increasing to 23.1 c from 21.67c
and there is only marginal increase in gearing which can be ignored by shareholders
'$000'' '$000''
Proposal 2 Proposal 3
26000 26000
Decrease in interest
-1000 On loan redeemed 1296
-280 On remaining loan 135.6
3000 Decrease in Return -3750
Disposal Gain 2000
27720 25681.6
120000 Number of shares 120000
0.231 EPS 0.2140133
'$000'' '$000''
Proposal 2 Proposal 3
302000 257000
69000 67431.6
371000 324431.6
48000 48000
124720 122681.6
172720 170681.6
160000 113000
38280 40750
198280 153750
371000 324431.6
48.09% 39.83%
Ronson's Co
Part a
Investment Side Working
''$ m'' ''$ m'' ''$ m'' ''$ m'' ''$ m'' ''$ m'' Be 1.418
Years 0 1 2 3 4 Debt 1
Free Cash -120 20.9 20.6 28.7 104.6 Equity 5
Tax 20%
Pv of futur 115.48 -3.96 Ba 1.22
Investment 120
BAse Case -4.52 Rf 3%
if we only consider Base case NPV, Project is not feasible Equity Ris 9%
UnKe 14.00%
Financing S''$ m''
External F 100
Issuance co 2
Tax Shield on Bank loan

Equal Pay 15.43
Loan amou 50
Annuity fac 3.24
Year Opening baInterest @Payment closing bal Tax savings

1 50 4.5 15.43 39.07 0.9
2 39.07 3.52 15.43 27.16 0.7
3 27.1563 2.44 15.43 14.17 0.49
4 14.17037 1.28 15.43 0.02 0.26
Pv of tax s 2.21
Tax Shield on subsidized loan

YEars 1 2 3 4
Tax savings 0.28 0.28 0.28 0.28
PV of tax s 1.04
Pv of after tax interest savings

After tax i 1.76 1.76 1.76 1.76
Pv of after 6.54
APV 3.28 5 minutes
Overall APV is Positive , we should select the project as it is increasing the wealth of shareholders
ALthough base case NPV is negative but due to cheaper financing overall APV is positive
We should apply sensitivity analysis and scenario analysis to improve the decision .
Years 0 1 2 3 4
After tax c -3800 1220 1153 1386 3829
IRR 27.30%
MIRR 22.70%
-2.326348 -2.33
-2.33
-1.64
Part A
NPV
'$ 000'' '$ 000'' '$ 000'' '$ 000'' '$ 000'' '$ 000'' '$ 000''
Years 0 1 2 3 4 5
Revenue - 7,500 21,600 58,320 75,583 129,246
Variable cost - 3,000 8,400 22,050 27,783 46,189
Fixed cost 1,500 1,575 1,654 1,736 1,823
Training cost 3,600 3,360 2,205 2,778 4,619
Tax Depreciati - 12,000 12,000 12,000 12,000 32,000
Taxable Profit (12,600) (3,735) 20,411 31,285 44,615
tax rate 20% 2,520 747 (4,082) (6,257) (8,923)
Tax Depreciati - 12,000 12,000 12,000 12,000 32,000
working capita (1,500) (1,410) (3,672) (1,726) (5,366) 13,675
Investment (120,000)
Scrap value 40,000
Net cashflows (121,500) 510 5,340 26,603 31,662 121,367
12% 1 0.892857143 0.79719387755102 0.71178025 0.63551808 0.567426856
PV (121,500) 455 4,257 18,935 20,122 68,867
PV of future C $112,635.90
Investment (121,500)
NPV ($8,864.10)
'$000''
Part B
Pa 107,923.53 107,924 $107,923.53
Pe 113000
T 2
S 0.3
R 0.03
D1 0.2452131181
D2 -0.179050951
NDI 0.5968542902 Call value 18766.147

ND2 0.4289488476 Put value 17262.0079
Project NPV ($8,864.10)

SIC offer value 17262.0079
Total Value of project $8,397.91
'$ 000'' '$ 000'' '$ 000'' '$ 000'' '$ 000'' '$ 000''
Years 0 1 2 3 4
Units 7500 20000 50000 60000
selling price 1000 1080 1166.4 1259.712

Revenue 7500 21600 58320 75582.72
Variable cost/Unit 400 420 441 463.05

Variable cost 3000 8400 22050 27783
Tax Depreciation 12000 12000 12000 12000
Carrying value 72000

scrap value 40000
working capit -1500 -1410 -3672 -1726.272 -5366.373
Cost of capital
Sic is a suitable Proxy company
Ungear the Be of SIC co Regear it With ATC gearing
Be 1.8
Equity 375 Equity 364
Debt 93.84 Debt 156
Ba 1.499760038 Be 2.0139634801
Rf 3%
Equity Risk Premium 6%
KE 15.08%
KD 5%
$m %
Equity 364 15.08%
Debt 156 4.8%
520
WACC
working
Years 3 4 5
Future cashfl 26,603 31,662 121,367
12% 0.711780248 0.635518078404831 0.567426855718599
PV 18,935.30 20,121.53 68,866.71
PA 107,923.53
'$ 000''
5
95000
1360.489
129246.5
486.2025
46189.24
32000
13674.65
54.90496
7.488
62.39296
12%
Part a
'$ 000'' '$ 000'' '$ 000'' '$ 000'' '$ 000'' '$ 000'' '$ 000''
Years 0 1 2 3 4 5
Contribution 15,000 16,065 17,206 18,427
fixed cost 8,700 8,961 9,230 9,507
Tax depreciation - - 2,400 2,400 2,400 4,800
Taxable profit 3,900 4,704 5,576 4,120
Tax 20% (780) (941) (1,115) (824)
Tax depreciation - - 2,400 2,400 2,400 4,800
Investment (12,000)
Net cashflows (12,000) 5,520 6,163 6,861 8,096
12% 1 1 1 1 1
PV (10,714) 4,401 4,387 4,360 4,594
NPV 7,027
Part b
Probability
In case of recession 20%
Year 2 to 5 PV 10644.91
In case of No recessio 80%

Year 2 to 5 PV 17,742
EV of year 2 to 5 cash 16,322.20

Investment (10,714)
NPV 5,607.91
part c
Year 1 2 3 4 5 6 7
Cashflows -12000 3430 3430 3430 3430 3430 3430
NPV $3,262.22
PV of cashflows 13976.37256
Investment -10714.2857
3262.086849
Part d '$000''
Sell NOW 4300
In case of approval 70%

NPV 5,607.91
In case of No approva 30%

Cashflows 892.8571429
Expected Value 4,193.39
Sell Now because it has higher benefit

workings
'$ 000'' '$ 000'' '$ 000'' '$ 000'' '$ 000'' '$ 000'' '$ 000''
Years 0 1 2 3 4 5
Tax depreciation 2400 2400 2400 4800
8
3430
Part C
(i)
Value of Kawa Co
$m $m $m $m $m $m $m
Years 0 1 2 3 4 5 onwards
Sales 900 954.00 1,011.24 1,071.91 1,136.23
PBIT @ 21% 200.34 212.36 225.10 238.61
TAx 20% (40.07) (42.47) (45.02) (47.72)
CAPEX (13.50) (14.31) (15.17) (16.08)
Free Cashflows 146.77 155.58 164.91 174.81 2,107.98
11% 0.90 0.81 0.73 0.66 0.66
PV 132.23 126.27 120.58 115.15 1,388.59
MV of Business 1,882.82
MV of equity 1,412.12
MV/Share 0.71
Before Demerger
Mv of equity 1200.5
After Demerger
Mv of equity 1412.12
% Gain 17.63%
Part C (ii)
Addational Equity VAlue
P/E ratio of LAhlo Co 14.049 Combine Earnings 350.1
P/E of Kawa CO 10.25 Lahlo Earnings 171
Current MV of Equity 1200.5 Kawa earnings 117.1
Earnings of KAWA co 117.1 Increase in earnings 62
Combine P/e 12.15 Combine MV of equity 4253.88

Mv of Lahlo CO 2402.379
MV of Kawa Co 1200.5
Additional Equity 651
Share method Pre-Acq INformation

Share Mv/share Pre-Acq Value Shares MV/SHare
LAhla CO 1200 2402.379 1200 2.28
Kawa co 2000 1200.5 666.67 2.28
3602.879 1866.67 2.28
Cash MEthod
Share method Pre-Acq INformation
Share Mv/share Pre-Acq Value Shares MV/SHare
LAhla CO 1200 2402.379 1200
Kawa co 2000 1200.5
3602.879 1200
LAHLA co After Acquisition

Current Capital Structure Cash offer
Equity 2402.379 0.6 Equity 2933.88 46.90%
Debt 1601.586 0.4 Debt 3321.586 53.10%
4003.965 6255.46
Kawa prespective Lahla Co prespective

If demerger 17.63%
In case of sell
SHare offer 26.55% 13.83%
Cash offer 9.95% 22.12%
working
It is assumed Buni Co as proxy Co and will use its Ba
Ba 1.15
MV of Equity Kawa 1200.5
Mv of CHakula Equity 4900
Mv of Debt 400
Re gear the Ba using Kawa Co GEaring 1.46

Rf 3%
Risk Premium 7.20%
KE 13.49%
Kd 3.52%
MV MV Cost
MV of Equity Kawa 1200.5 13.49% 161.9124
Mv of Debt 400 3.52% 14.08
1600.5 175.9924
WACC 11.00%
EQUITY 75.01%
Debt 24.99%
Post -Acq Information

Post -Acq Value Gain Gain%
2734.63 332.26 13.83%
1519.24 318.74 26.55%
4253.88 651
Post -Acq Information

Post -Acq Value Gain Gain%
2933.88 531.5 22.12%
1320 119.5 9.95%
4253.88 651
After Acquisition
Share offer
4253.87629713919 68.00%
2001.586 32.00%
6255.46229713919
part b
P/E ratios
Offer Price EPS of Tidded co P/E
Initial Offer 20.31 1.42 14.28
Option 1 24.38 1.42 17.14

Option 2 22.75 1.42 16.00
Option 3 23.73 1.42 16.68
Part C
Share for Share Exchange
Funding Required Nil Gearing 10.55%

Equity 6216
EPS of Group 0.85 Debt 733
PAT of Louied $m 296
PAT of TIDDED co $m 128 Combine Mv of equity 6216
Synergy earning $m 20
Combine Earnings $m 444
Combine shares 520

louieed co existing shares 340
New shares issued 180
Cash Offer
$m
Funding Required 1763.5
Cash requirement 2047.5
Cash surpluses 284
EPS of Group 0.96 Gearing 35.30%

PAT of Louied $m 296 Equity 4575.62
PAT of TIDDED co $m 128 Debt 2496.5
Increase in interest -105.81 Combine Mv of equity 4575.62
Loss of Cash surplus income -11.36
Combine Earnings $m 326.83
Combine shares 340

Mix Offer
Funding Required 535
Cash requirement 819
Cash surplus 284
EPS of Group 0.89 Gearing 18.44%

PAT of Louied $m 296 Equity 5607.56
PAT of TIDDED co $m 128 Debt 1268
Increase in interest -32.1 Combine Mv of equity 5607.56
Loss of Cash surplus income -11.36
Combine Earnings $m 400.54
Combine shares 448

louieed co existing shares 340
New shares issued 108
EPS Gearing
Shares Offer 0.85 10.55%
Cash offer 0.96 35.30%
Mix offer 0.89 18.44%
Before Acquisition 0.87 11.53%
Equity 4144
Debt 540
workings
PAT of Louieed co 296
Shares m 340
EPS 0.870588
P/E ratio 14
MV/Share of louiee 12.19
PAT of Tidded co 128

Shares m 90
EPS 1.422222
Part C
Combine Value
$m
Combine Equity value 13,373.8
Mv of Avem 12,000.0
Mv of Fugue co 922.1
Total Synergy 451.6
Premium to Fugae co 276.64
Synergy for Avem Co 174.96
Mv of Fugae 922.15 Combine Equity value

FCFE 76.5 FCFE of Avem
KE 11% Fcfe of Fugae
Retention ratio 22.70% Synergy
Growth 2.50% Combine FCFE
Combine P/Cf ratio
Part C (ii)
'$000'' '$000'' '$000'' '$000'' '$000''
Years 1 2 3 4
Cashflows 3,277.60 16,134.30 36,504.70 35,683.60
12% 0.89 0.80 0.71 0.64
PV 2,926.43 12,862.17 25,983.32 22,677.57
Pv of cashflows yr 1-4 64,449.49
In case of No Growth 25% Ev of Overall Cashflows 50,856.23

Pv of cashflows yr 1-4 32,224.75 Investment 42,000
Npv 8,856.23
In case of Growth 75%
Year 1 2,926.43
Ev of cashflows for yr 2-4 54,140.29
Year 2-4
20% slow growth 24,609.22
80% Full Growth 61,523.06
In case Lumi offer

In case of No Growth 25%
Pv of cashflows yr 1 1,463.21 Ev of Overall Cashflows 54,326.56
Accept Lumi offer 44,642.86 Investment 42,000
In case of Growth 75% Npv 12,326.56
Year 1 2,926.43
Lumi offer is only valuable in case of no growth

We ll Accept lumi offer at the end of year 1 in case of no growth ,
we ll sell project to lumi instead of receiving 50% of year 2 to 4 cashflows
13,373.8
1,666.7
76.5 Selorne Co
40.0
1,783.2
7.5
Working MV Cost
MV of Fugae CO Equity 922.1 15.3% 141.51
MV of Fugae co Debt $388.12 3.84% $14.90
1,310.3 156.4 Wacc
Years 1 2 3 4
Cashflows 5.4 5.4 5.4 105.4
Mv @ 4.8% $102.14
Cost of equity
It is assumed that Reka Co is a suitable Proxy co for Luxury Business
Ungear the Reka CO Be
BE 1.6
Equity 360
Debt 357
Ba 0.892
Total Ba=Ba luxury x 15%+Ba non-luxury x 85%

0.892=Ba Luxury x 15%+0.8*0.85
Ba of luxury Business 1.41
Regear it with Fugae Co gearing
Be 1.890942
Rf 4%
Risk Premium 6%
KE 15.3%
selling price 150
Years 0 1 2 3
Units 4,000 5,000 6,000
Revenue 600,000 750,000 900,000

12%
4
4,000
600,000
Part b i
BURYECS Counter party Swap structure
Fixed rate 4% 5.80% WBR+6.4%
Floating rate WBR+0.6% WBR+0.4% WBR+4.4%
Savings 2%
Buryecs co will borrow at fixed 4% in eurozone and Counter part will borrow
at floating WBR+0.4% in Wirtonia
Distribute the savingsBURYECS Counter party

2% 1.20% 0.80%
distribute the cost
0.50% 0.30% 0.20%
Net savings 0.90% 0.60%
After Swap Cost

BURYECS WBR+0.6% -0.90% WBR-0.3%
counter party 5.80% -0.60% 5.20%
Part B (ii)
'm''
Years 0 1 2 3 3
Cash flows $ -5000 600 600 600 7500
Exchange rate EUR/$ 0.143 0.1472 0.1417 0.13150083 0.131500834
Cash flows Eur -715 88.30 85.03 78.90 986.26
14% 1 0.87719298246 0.76946752847 0.67497152 0.674971516
PV -715.00 77.46 65.43 53.26 665.69
NPV without swap 146.83
'm''
Years 0 1 2 3 3
Cash flows $ -5000 600 600 3100 5000
Exchange rate EUR/$ 0.143 0.1472 0.1417 0.1315 0.143
Cash flows Eur -715 88.30 85.03 407.65 715.00
14% 1 0.87719298246 0.76946752847 0.67497152 0.674971516
PV -715.00 77.46 65.43 275.15 482.60
NPV with swap 185.64
Gain on SWAP 38.81
Part C
Over the Counter option
Receipts $m 7500
wirtonia $ Put Option
Strike rate $/Eur 7.75 7.25
Premium Amount 17.16 28.9575

Expected Receipts 967.74 1034.48
Premium Amount 17.16 0 28.96
Net Receipts in EUR 950.58 1005.53
7.25 Strike rate is better compare to 7.75 strike rate as it is generating higher receipts
In swap rate
7500 $ EUR/$
5000 0.143 715
2500 0.1315 328.75
1043.75
Swap is better hedging method as it is generating 1044m EUR compare to 1005 m EURs
BURYECS Counter party
Borrow from bank 4% WBR+0.4%
Receive -4.60% (WBR)

pay WBR 4.60%
Before Fee cost WBR-0.6% 5%

fee 0.30% 0.20%
After Swap Cost WBR-0.3% 5.20%
2014 2015 2016
Profiatbaility Ratios
Sales 23508 23905 24463
Change in sales 1.69% 2.33%
Sales Break up
Town center store 5265 5189 5192
-1.4% 0.1%
Convenience store 3786 3792 3833
0.2% 1.1%
Out of town stores 10220 10340 10547
1.17% 2.00%
no of store
Town center store 165.00 157.00 153.00
Sales/Store 31.91 33.05 33.93
Convenience store 700.00 670.00 640.00
5.41 5.66 5.99
Out of town stores 220.00 224.00 227.00
46.45 46.16 46.46
WORKERS 78 75 72
SALES/Worker 301.38 318.73 339.76
Gross profit 1018 1211 1514

Margin 4.3% 5.1% 6.2%
operating profit 204 407 712
Operating Profit margin 0.87% 1.70% 2.91%
ROCE 2.05% 4.12% 7.36%

Equity 8248 8319 8427
Debt 1706 1556 1246
9954 9875 9673
Asset Turnover 2.362 2.421 2.529

Sales/Capital employed
Sales/Assets
Liquidity Ratios
Current ratio 0.83627608 1.28960155 1.69430052
Current assets 521 1327 1962
Current liabilities 623 1029 1158
Slovency ratios
Interest cover 1.64516129 3.53913043 7.12
Interest 124 115 100
Gearing ratios 0.20683802 0.18704171 0.14785808
Investors ratios
Dividend yield 4.82% 6.00% 10.25%
Dividend 0.1875 0.2125 0.3425
Capital Gain
MV/Share 3.54 3.34 3.23
-9.00% -5.65% -3.29%
Total return -4.18% 0.35% 6.96%
P/E ratio 54.4615385 12.1454545 5.52136752

EPS 0.065 0.275 0.585
Change in DPS
$m
Income flow 22
Admin cost 0.2
Net come 21.8
Cost outflows
A tanche 108 11% 11.88 Interest cost
B tranche 27 12% 3.24 Receive
C tranche 27 13% 3.51 Pay
Subordinate Tranche 18 17.61% 3.17 After Swap co
If income Falls by 5%
$m
Income flow 20.9
Admin cost 0.2
Net come 20.7
Cost outflows
A tanche 108 11% 11.88
B tranche 27 12% 3.24
C tranche 27 13% 3.51
Subordinate Tranche 18 11.50% 2.07
(Libor +1.5%)
Libor
-9.50%
11%
Part a) Adjusted Present Value
Investment Side
''$m'' ''$m''
YEars 0
Free Cashflows -120
Pv of cashflows $115.49
Investment -120
Base Case NPV ($4.51)
Financing Side
Issuance Cost 2%
Gross External Finance 100
2
Tax Shield
Bank Loan
Equivalent Amount/Installment amount 15.432098765
Loan amount 50
Annuity factor @ 9% 3.24
Opening Balance Interest @ 9%

50 4.5
39.07 3.52
27.15 2.44
14.16 1.27
PV of tax savings on interest $2.20
Subsidised loan
Tax savings on interest 0.28
Pv of tax shield 1.04

After tax interest savings 1.76
Pv of after tax interest savings 6.54
APV $3.27
APV is overall positive at 3.28m $ so we should accept the project
However it is important to note that Base case Npv is negative at (4.5m) so project is
Only feasible because of cheaper source of debt.If compant unable to win
Subsidized debt, Overall APV will become negative so we should apply scenario analysis and
sensitivity analysis to improve decision making
Workings
''$m'' ''$m'' ''$m'' ''$m'' Ungear the Current Be
1 2 3 4 Be 1.418
20.9 20.6 28.7 104.6 Equity 5
Debt 1
Tax 20%
Ba 1.222414
Rf 3%
Market ris 9%
Ke ung 14.00%
InstallmentClosing ba Tax savings

15.43 39.07 0.9
15.43 27.15 0.7
15.43 14.16 0.49
15.43 0 0.25
part a)
Mv of Company
Years 0 1 2 3 4 5 onwards
Revenue 1500 1590 1685.4 1786.524 1893.715
Operating Profit 508.80 539.33 571.69 605.99

tax @ 25% -127.20 -134.83 -142.92 -151.50
Capex 210 -231.00 -254.10 -279.51 -307.46
Free cashflows to Firm 283.10 290.85 298.13 304.84 3488.73
Pv of first 4 years $890.57

Pv of cashflows after year 4 2217.14982
Mv of business $3,107.71
MV of equity $1,864.63
shares 150
MV/Share $12.43
part b $m
Calculate Combine Mv 13,944.6
Combine Earnings 1143
Borgonni Earnings 886
Venitra earnings 257
Combine P/E ratio 12.2
$m
Pre Acq information Post acq Information
shares MV/share Total Mv shares MV/share
Bonrgonni 375 10,809.20 375 30.99
Venitra 150 $1,864.63 75 30.99
525 12,673.83 450 30.99
strayer
tippletine
amberle
Burung
Robson
workings
Revenue 1500
Operating profit 480
Operating profit margin 0.32
t acq Information
Total Mv Gain % gain
11,620.50 811.30 7.51%
2,324.10 459.47 24.64%
13,944.6 1,270.77
part a
Fixed rates Floating rates
Keshi Co 5.50% L + 0.4% L + 5%
Counter party 4.60% L + 0.3% L + 5.8%
Savings 0.80%
Keshi co Should borrow at floating rate L + 0.4% and

Counter party should borrow at fixed rate 4.6%
Distribute the savings Fee Net savings

Keshi Co 0.56% 0.10% 0.46%
Counter party 0.2400% 0.10% 0.14%
After Swap Cost

Keshi Co 5.50% 5.04%
Counter party L + 0.3% L + 0.3%-0.14% L + 0.16%
Option s
Future Interest rate 4.30%
Borrowing 18,000,000
Put option
March contract
Exercise rate 95.5 96
4.50% 4%
Contracts 42
Premium 69510 94710

0.66% 0.90%
Decide to exercise the option

Exercise price 4.50% 4%
Closing future price 4.5200% 4.5200%
Gain 0.0200% 0.5200%
2100 54600
Actual Borrowing 4.700% 4.700%

Gain on option 0.0200% 0.5200%
Premium 0.66% 0.90%
Effective cost 5.34200% 5.08200%
In case of Interest rate Swap if interest rates move to any direction. Keshi co position has been locked at 5.04%
but in Option if we choose 96 Exercise price keshi co maximum cost will be 5.08% which is slightly higher than swap cost
but if interest rate moves downward keshi co minimum interest cost will be 4.6% so in option co has the advantage
to get benefit if interest rate moves in downward direction.
Keshi Co Counter party
Borrow from bank (L +0.4%) -4.60%
Receive L 4.54%
pay -4.54% ( L )
Before Fee cost 4.94% L + 0.06%

Fee 0.10% 0.10%
After swap cost 5.04% L + 0.16%
3.30%
95.5 96
69510 94710
0.66% 0.90%
4.50% 4%
3.5200% 3.5200%
Not exercise Not exercise
3.700% 3.700%
0.66% 0.90%
4.36200% 4.60200%
gher than swap cost

s the advantage
Project Specific WACC
Louis co $m cost %
Market value of equity 979 14.90% 145.835
Market value of debt $347.27 3.84% $13.34
1326.26747250978 159.1701
WACC 12%
workings
YTM of bond 4.800%
Rf rate 4%
Spread 0.80%
Kd of bond 3.84%
Market value of bond

Years 1 2 3 4
Cashflows 5.4 5.4 5.4 105.4
Market value of bond $102.14
$347.27
cost of equity of Louis co
ungear the be of Reka co

be 1.6
Equity value $m 360
Debt value $m 357
Ba of Reka co 0.892193308550186
Ba of non luxury business 0.8
Ba of luxury business
weighted avg ba=ba luxury x 15%+ ba non luxury x 85%
0.89219=ba luxury x 15%+0.8 x 85%
0.89219-0.68=ba luxury x 15%
ba luxury 1.41462205700124
regear it with louis gearing

be 1.81605390688186
Market value of equity 979
Market value of debt 347.26747250978
KE 14.90%
Rf 4%
Makret premium 6%
Example
Years 0 1 2 3 4 5
Cashflows -1000 400 500 200 100 50
PV of inflows $1,026.47 IRR 11.44%

investment -1000 MIRR 10.58%
NPV $26.47
NPV 26.47
BOND
par 100 tax 30%
coupon 5%
maturity 5 years
mv 105
redemption 100
how to calculate YTM now
Years 0 1 2 3 4 5
cashflows -105 5 5 5 5 105
YTM 3.88%
before tax KD
how to calculate KD now
Years 0 1 2 3 4 5
cashflows -105 3.5 3.5 3.5 3.5 103.5
KD 2.43%
Part a (i)
Calculating Forward rates from spot yeild rates
Year Spot yield Forward rate

1 3.70% 3.70%
2 4.25% 4.80%
3 4.70% 5.61%
4 5.10% 6.31%
Year Receive Floating Pay fixed interest Net Payment/Receipts

$m $m $m discount rates
1 14.00 19.39 -5.39 3.70% -5.195757
2 18.41 19.39 -0.98 4.25% -0.898349
3 21.62 19.39 2.24 4.70% 1.947619
4 24.44 19.39 5.05 5.10% 4.13785
0
part a (ii)
4.50% 2.90%
Borrow from Bank (Spot yield + 0.5%) -5.00% -3.40%
Recive Spot yield-0.20% 4.300% 2.700%
Pay -4.847% -4.847% -4.847%
Fee -0.25% -0.25% -0.25%
After Swap cost 5.797% -5.797% -5.797%

Part B (i)
Calculate interest savings
Fixed rate Floating rates Proposed Swap Structure
Buryecs 4% WBR+0.6% WBR+6.4%
Counterparty 5.80% WBR+0.4% WBR+4.4%
Savings 2%
Buryecs will borrow at fixed rate 4% in eurpoe and Counter party will borrow at floating rate
WBR + o.4% in Wirtonia
Distribute the savings Fee Calculate Net savings
Buryecs 1.20% 0.30% 0.90%
Counterparty 0.800% 0.20% 0.60%
After Swap Cost After Swap cost

Buryecs WBR+0.6% 0.90% WBR-0.3%
Counterparty 5.80% 0.60% 5.20%
Buryecs Counter party

Borrow from Bank -4% ( WBR +0.4% )
Recieve 4.60% WBR

pay (WBR) -4.60%
Before Fee cost Wbr-0.6% 5.00%

Fee 0.30% 0.20%
After swap cost WBR-0.3% 5.20%
Part B (ii)
Calculation of NPV (millions)
Years 0 1 2 3 3 3
Cashflows $ -5000 600 600 600 5000 2500
Exchange rate EUR/W$ 0.1430 0.1472 0.1417 0.1315 0.1430 0.1315
Cashflows Eur -715.0 88.3 85.0 78.9 715.0 328.8
14% 1.000 0.877 0.769 0.675 0.675 0.675
PV -715.0 77.5 65.4 53.3 482.6 221.9
NPV 185.6
Without swap
Years 0 1 2 3 3 3
Cashflows $ -5000 600 600 600 5000 2500
Exchange rate EUR/W$ 0.1430 0.1472 0.1417 0.1315 0.1315 0.1315
Cashflows Eur -715.0 88.3 85.0 78.9 657.5 328.8
14% 1.000 0.877 0.769 0.675 0.675 0.675
PV -715.0 77.5 65.4 53.3 443.8 221.9
NPV 146.8
Gain on swap 38.8
Part C
Currency Options
Amount of FCY W$ 7500

Buy W$ Put option
Exercise price 7.25 w$/EUR 7.75 W$/Eur
Premium Cost 2.70% 1.60%
Premium in W$ 202.5 120
Premium in Eur 28.9575 17.16
it is assumed option is exercised

EURs EURs
Expected Receipts 1034.483 967.741935483871
Premium in Eur 28.9575 0 17.16
Net receipts 1005.525 950.581935483871
7.25 W$/Eur is a better exercise price beacuase it is yielding higher receipts
Comare it with Swap EUR

In options receipts 1005.525
In swap receipts 1043.8
Gain on swaps 38.2
Investment app 1 qs on APV+wacc+International IA+ Beta cal

Business valuation last 5 attempts Qs
Restructuring Crysos+Eveiew cinemas+Doric Co+conejo+En
Currency Risk 3 qs on currency risk
Interest rate 3 qs on interest rate risk
Other topics atleast cover one time
nternational IA+ Beta calculation
mas+Doric Co+conejo+Ennea+Bento CO
Part B
Collar contract
If interest rate rises to If interest rate falls
4.1% to 3.1%
sell Put @ 96.50 3.50% 3.50%
Buy Call @ 97.00 3% 3%
Compare this collar with closing future
Closing future 4.2600% 3.2600%

Put option will be exercised no call and put will be exercised
and loss is 0.7600%
depost at bank at market rate 3.70% 2.70%

loss on Collar 0.7600%
Net premium income -0.09% -0.09%
Net income 3.03100% 2.79100%
working
Receive Premium 0.12% Current spot 3.60%
Opening future @ 95.76 4.24%
if interest rate rises spot 4.10%
Pay premium 0.03% If interest rate falls spot 3.10%
Net cost -0.09%
d put will be exercised

Tisa Co
Part a)
Cost of capital of Tisa Company
Market values Cost %
$m %
Equity 18 14.42% 2.59515
Debt 3.6 4.50% 0.162
21.6 2.75715
WACC 12.76%
Equity shares ( m) 10
Mv /share 1.8
Equity value 18
Cost of equity 14.42%

Rf 3.50%
Equity Risk Premium 5.80%
Be 1.88
Ungear the Proxy co ELFU be Ungear the Other activites Be

Be 1.4 Be 1.25
Mv of equity (m) 480 Mv of equity (m) 360
Mv of debt (m) 96 Mv of debt (m) 76.8
Tax 25%
Ba 1.22 Ba 1.08
Calculate the Ba of innovative component

Total Ba of Elfu=Ba of other activities x 75%+ Ba of innovative component x 25%
1.22=1.08*0.75+ba*0.25
Ba 1.637
Regear it with Tisa co gearing
Equity 18
Debt 3.6
Be 1.88
Part B
Prcess omega Zeta
IRR 27.30% 26.60%
MIRR 22.68% 23.30%
According to IRR method Process Omega is more benefical and should be selected but there is
one problem with IRR that it assumed the reinvesment of cashflows at calculated IRR that is very
high and practically not possible.MIRR method assumes that cashlfows will be reinvested on cost
of capital which is practically possible and based on MIRR process Zeta should be selected
Process Omega
Years 0 1 2 3 4
Post tac cashflows -3800 1220 1153 1386 3829
IRR 27.30%
MIRR 22.68%
Part B (i)
Borrowing requirements
Funds required ( y$) 50,000,000
in six months time inflows (EUR) 10,000,000
In six months time inflows (Y$) 25,462,000
Borrowing requirements ( Y$) 24,538,000
Part B (ii) Project Alpha

'Y$000" 'Y$000" 'Y$000" 'Y$000"
Years 0 1 2
Sales @ 10% 17,325 34,304
Cost @ 6,365 11,584
Compeonent cost Y$ - 3,707.29 5,669.98
Tax Allowable depreciation 0 12500 9375
Taxable profit (5,247.09) 7,674.58
tax 20% 1,049.42 (1,534.92)
Tax Allowable depreciation 0 12500 9375
Working capital change (1,732.50) (2,546.78) (4,287.94)
Investment -50000
Scrap value
Netcashflows (51,732.50) 5,755.55 11,226.73
Discount factor 10% 1 0.909090909091 0.826446281
Present value (51,732.50) 5,232.32 9,278.29
Base case NPV 5,263.72
working
Exchange rate Y$/EUR 3.03
Uk Inflation 2%
Yasiland inflation 4%
Years 0 1 2
Exchange rate Y$/EUR 3.03 3.089 3.150
Component cost GBP 1200 1800
Compeonent cost Y$ 3,707 5,670
Cost (WDV) (000) 50,000 50,000 37,500

Tax Allowable depreciation 12,500.00 9,375.00
Project Beta
'Y$000" 'Y$000" 'Y$000" 'Y$000"
Years 0 1 2
Present value Cashflows -50000 8450 19360
Base case NPV 5100
Financing Side 'Y$000''

Borrowing requirements ( Y$) 24,538
Tax shield
Tax savings on interest 103.06
Annuity factor 5% 3.54595050416
365.44
After tax interest savings 569.2816
Annuity factor 5% 3.54595050416
2018.64437653
Financing side 1,625.18
Project Alpha Beta

Base case NPV 5,263.72 5100
Financing side 1,625.18 1,625.18
APV 6,888.90 6,725.18
Project Duration 3.04 2.43
Project Duration of Alpha

Years 0 1 2
Present value 5,232.32 9,278.29
Proportion of each year 0.09 0.16
weighted average years 0.09 0.33
Duration 3.04
working
Forward Y4/EUR 2.5462
Expected Receipts 25,462,000
Money market hedge

borrow in Eurs 2.20%
PV of Fcy amount 9,891,197
conver this in HCY using spot rate 24,935,707.22
Invest in HCY 25,234,935.71
'Y$000" 'Y$000"
3 4
62,890 33,821
24,095 9,546
11,883.49 4,584.62
7031.25 11093.75
19,880.43 8,596.29
(3,976.09) (1,719.26)
7031.25 11093.75
4,360.36 4,206.86
10,000
27,295.95 32,177.64
0.751314800901578 0.683013455365
20,507.85 21,977.76
3 4
3.212 3.275
3700 1400
11,883 4,585
28,125 21,094
7,031.25 11,093.75
'Y$000" 'Y$000"
3 4
22340 4950
3 4
20,507.85 21,977.76 56,996.22
0.36 0.39
1.08 1.54
Part B
Kerrin CO
shares 750
Mv/Share 5.28
Total MV of Kerrin 3960
Current P/E 12.96151 P/E ratio after Acquisition 14.25766
Current earnings 305.52
Danton Co P/E ratio 15.55381

Earnings of Danton c 95.04
Mv of danton co 1478.234
Combine MV 5944.874
Combine earnings 416.96
Earnings of Kerrin 305.52
Earnings of Danton 95.04
Synergies 16.4
Share for share
Pre-Acquisition Values Post-Acquisition value
Shares Mv/share Pre Acq Market values Shares
Kerrin 750 5.28 3960 750
Danton 140 10.55881 1478.23409269442 0.323254 358.244499886595
1108.2444998866
Kerrin co is offering 358.24 million shares for
Share Exchange ratio

Kerrin co is offering 2.56 shares for every sha
Cash offer
Pre-Acquisition Values Post-Acquisition value
Shares Mv/share Pre Acq Market values Shares
Kerrin 750 5.28 3960 750
Danton 140 10.55881 1478.23409269442
Mv/share Post Acq MGain % gain
5.364226 4023.169 63.16921 1.60%
5.364226 1921.704 443.4702 30.00%
5944.874
358.24 million shares for 140 million shares of Danton co
2.558889
2.56 shares for every share of Danton co
Mv/share Post Acq MGain % gain

5.481165 4110.874 150.8735 3.81%
1834 355.7659 24.07%
5944.874
(i)
Cease Trading $m
Realizable value of Assets 210
Redundancy Fee 54
Net realizable value of assets 156
Unsecured Liabilities 280
Debtholder will receive 55.71% of their original Investment.
Share holders will Receive nothing
Management will lose their job
(ii)
Current Year Balance sheet Next Year Balance sheet
Non current asstes $m $m
Land and building 70 70 Sales
Machine 50 130 Cost
120 200 Dep
Current assets Finance cost
Inventory 180 180 PBT
Receivables 40 40 TAX
Cash 20 PAT
220 240
340 440 Value of Doric CO
Share capital 40 310 Free cashflow to Firm
Reserves 20 -
60 310 PBIT
Non current liabilties Tax @ 20%
Bonds 120 Bank loan 60 Depreciation
loan 30 0 Capex
150 60 FCFF
Current liabilities Growth
Payables 70 70 COC
Overdraft 60
130 70 Value of Business
340 440 DEBT
Value of Equity
shares
MV/Share
Assumptions
1 Depreciation will be equivalent to
2 Cost of capital will reduce by 5.5%
3 will reflect the risk of restructure
4 There will be no growth in busine
constant
(iii)
Additional Finance Needed $m Value of Company
Inflows Free cashflow to Firm
Sale proceeds of fridge Division 140
Sales
Outflows Cost
ALL liabilities 280 Depreciation
shares value 60 PBIT
Mobile refrigeration busniess 50 Tax @ 20%
Investment in Machine 26.66667 FCFF
Redundancy Cost 36 Growth
452.6667 COC
Additional Finance Needed 312.6667 MV of Business
Cease Trading Restructuring

Bondholders
they will get only 56% of their investment 120m bond will be cancelled and they further invest 90 m
in return they will 270 m shares
Investment 210
shares 270
values of shares 224.1
% ownership 87%
Shareholders
they will get nothinh Their previous shares will be cancelled and they further contribute
40m$ cash and get 13% ownship
Management
lose their Job they will retain the job and will get out of money share options
current share price 0.83$
Strike price 1.1
Last Income statement Next year Income statement
$m $m
510 545.7
490 490
18 30
16 4.2
-14 21.5
4.3
-14 17.2
hflow to Firm
$m
25.7
-5.14
20.56
NIL
6.500%
316.3077
60
256.3077
310
0.826799
ation will be equivalent to Capex

capital will reduce by 5.5% and New cost of capital
ect the risk of restructure business
ill be no growth in business, cashflows will remain
hflow to Firm
$m
127.33
84
10 10
33.33
-6.666
26.664
5%
11.00%
466.62
Management Buyout
Debtholder will get their 100% amount back
further contribute shareholder will sell their shares at 20%

premium
y share options Management will become owner of company

Part a
FCY receipts ( m Peso) 675
60% Receipts in USD 405
Official Exchange rate Peso/$ 98.2
USD Receipts 4,124,236
Remaining 40% Amount 270
Unofficial rate 179.745
Sterling Receipts 1,502,128
FCY need to hedged $ 4,124,236
Forward Contract USD/GBP USD/GBP

3 month 1.5362 1.5398
12 month 1.514 1.5178
-0.0024666667 -0.0024444444
4 month forward 1.5337 1.5374
Expected Receipts in GBP 2,682,682.11
Currency Future
FCY need to hedged $ 4124236.25255
Buy Pound future
Dec Contract USD/GBP 1.5275
no of contracts 43.1998560005 43
Lock in rate USD/GBP 1.5353
Expected Receipts 2,686,216
Option Contract
FCY need to hedged $ 4124236.25255
Pound Call Option
Exercise price USD/GBP 1.525 1.55
no of contracts 86.5413508731 85.145522633
86 85
Premium Cost 0.0335 0.0225
Premium cost in USD 90031.25 59765.625
Spot rate USD/GBP 1.5475 1.5475
Premium cost in GBP 58,179 38,621

Exercise the option GBP GBP
86 x 31250 2,687,500 85 x 31250 2,656,250.00
Sell excess amount at fwd 16,781.25 4,584.99
Premium cost in GBP 58178.5137318 38,621
Net receipts 2,646,102.74 2,622,214.23
USD USD
Pay in USD 4,098,437.50 4,117,187.50
Actual Receipt 4124236.25255 4124236.2525
Excess amount 25,798.75 7,048.75
Discussion
By comparing expected receipts generated by all methods, Currency future
has generated the highest answer but currency future has some issues,it will not exactly hedge
the transaction as overhedging/underhedging involves and you also have to maintain margin
balance with broker.
Although option answer is not favourable but it wil give benefit if exchange rate gets favourable in
market in future, we can lapse the option and do transaction in market
part b
(i)
Appendix 1
Suitable discount rate
ungear the beat of liyu co
Be 1.2
Mve (m) 172
Mvd (m) 48.26
tax 20%
Ba 0.98002
Total ba=ba scooter x 60% + Ba winds x 40%

0.98=ba scooter x 0.6 +1.1 X 0.4
ba scooter 0.897255
Sanwenyu co
KE 15.40%
rf 4.80%
Risk premium 8%
Be 1.325
MVd 0.2
Mve 0.8
Ba 1.104167
Keung 11.98% 12%
Part b (ii) Appendix 2

"$ m" "$ m" "$ m" "$ m" "$ m" "$ m" "$ m"
Years 0 1 2 3 4 5
Revenue 10 40 48 57.6
Cost 12 32 19.2 23.04
Depreciation 0 10.50 8.93 7.59 22.99
Profit -12.50 -0.92 21.21 11.57
Tax 20% 2.5 0.19 -4.24 -2.31
Depreciation 0 10.5 8.925 7.58625 22.98875 0
working capital change -10 4 -1.2 -1.44 8.64 0
investment -70 42
disposal proceeds
Net cashflows -80 2.00 9.30 27.55 80.96 -2.31
NPV ($1.06)
Part b (iii) Appendix 3
Financing Side
Funds required (m) 80
Issuance cost 3%
2.47
PV of tax shield
tax savings 0.48
annuity @ 4.8% 3.399319
1.631673
PV of interest savings
interest savings 2.4 1 2 3 4
annuity @ 4.8% 3.562487 int int int int
8.549968 tax tax tax
Pv of tax loss on interest saving 0.48
annuity @ 4.8% 3.399319 4.80% 3.399319
1.631673
Total Financing side 6.08
APV $5.02
working
"$ m" "$ m" "$ m" "$ m" "$ m" "$ m"
Years 0 1 2 3 4
WDV 70 59.5 50.575 42.98875

Depreciation 10.5 8.925 7.58625 22.98875
Revenue 0 10 40 48 57.6
Working ca 10 6 7.2 8.64 0
working ca -10 4 -1.2 -1.44 8.64
5
tax
Current Cost of Capital
Cost of equity $m %
Rf 4% Equity valu 139 12.100% 16.819
Risk premium 9% Debt value 46.8 4.68% 2.19024
Beta 0.9 185.8 19.00924
12.100% 10.23%
Cost of debt
Kd 4.68%
New cost of capital
Cost of debt
Years 1 2 3
Cashflows 75 75 1155
4.7% 4.8800% 5.2600%
0.955475 0.909106 0.857452
Pv 71.66062 68.18297 990.3573
MV 1130.20083841923
Total Mv 67.8120503051541
Years 0 1 2 3
Cashflows -1130.20083841923 54 54 1134
Kd 3.35%
Cost of equity
Beta of grocerry business
Ba of grocerry 0.724394311391115 Ba of food 0.88
Beta of grocerry 0.9
Equity value 139
debt value 46.8
Average beta=ba of grocerry x % + ba of food x %

0.768853079565082
Regear it with new gearing
Equity 139
debt 114.612050305154
Be 1.22530110862492
Ke 15.028%
$m %
Equity 139 15.028% 20.88852
Old debt 46.8 4.68% 2.19024
New Debt 67.8120503051541 3.35% 2.268838
253.612050305154 25.3476
WACC 9.99%
Department C $m Department B
Non current assets 19.64 Free cashflows $m
Current assets 8.37 PBDIT 14.96
Loan -20.2 loss 10% depart C -1.496
Cost -3 Depreciation 3.928
Net value 4.81 PBIT 9.536
Tax @ 20% -1.9072
FCFF 7.6288
Years 1
FCFF 9.15456
10% 0.909091
PV 8.322327
MV of business 190.72
Mv of debt 40
Mv of equity 150.72
Vogel co plus depart C
combine equity value Vogel P/E 9.007585
Combine earnings Mv 3
Vogel PAT 126.56 EPS 0.333053
Department A Pat 9.2 PAT 126.56
Synergy 7 Shares 380
Combine earnings 142.76
Group P/E 10.35872 Tori P/E 11.25948
Combine value 1478.811 Group P/E 10.35872
2 onwards Value of department C 4.81
200.6374 Value of department B 150.72
0.909091 Post Acq Value 1634.341
182.3977
Vogel Pre acq value 1140
Tori Value 207.1745
Synergy 287.1669
Maximum premium to be paid
Part a (i) Part a (ii)
Statement of Financial Position 30th june 2016 Statement of Financial Position 30th june
$m
Assets Assets
Non current assets 69 Non current assets
Current assets excluding cash 18 Current assets excluding cash
Cash 0 Cash
Total Assets 87 Total Assets
Equity & liabilities Equity & liabilities

Share capital 40 Share capital
Retain earnings 5 Retain earnings
45
Long term loan Long term loan
Bank loan 30 Bank loan @ 10 %
Loan notes 5 Loan notes
Current liabilities 7 Current liabilities
Total Equity & liabilities 87 Total Equity & liabilities
Part A (iii)
2016 2017 2018
$m $m
Opearting Profits 6 20 25
Interest 3 6.5 6.5
PBT 13.5 18.5
tax @ 20% -2.7 -3.7
PAT 2.4 10.8 14.8
3.5 0.37037
Interest cover 2 3.076923 3.846154
Part b
Patel family Directors Patel family Directors
Dilution of Control Patel family Non director
in case of restructuring no breach of covenant Gupte VC
Rajiv Patel
Patel family Non directors

Dilution of control Equity
Debt
Equity/Debt
Gupte VC
Increase in control
income is increasing
chances there that future dividends payemnt will start
Rajiv Patel
Exchanged its debt against the Equity
Bank
in case of restructuring no breach of covenant
Income is increasing
interst cover pbit/interest Improving
f Financial Position 30th june 2016
$m
125
ts excluding cash 42
5
172
90
5
95
65
12
& liabilities 172
Before restructuring After Restructuring

$m % $m %
27.5 55 42.5 47%
12.5 25 12.5 14%
10 20 30 33%
5 6%
50 100 90 100%
2016 2016
if gupte VC takes exit restructuring
40 90
35 65
1.142857 1.384615
Breach of covenant ok with covenant
Current NPV of the Project $m -1.01
Inputs of BSOP
Pa 10.6767 Pv of Future cashflows aft
Pe ( $m ) 15
Rf 0.04
S 0.3
T 3
D1 -0.163556
D2 -0.683171
NDI 0.43504
ND2 0.247249
C 1.35544
Total Npv after Considering BSOP 0.34544

Pv of Future cashflows after Option Expiry
0.88692
(a) Appendix 1
'$ m'' '$ m'' '$ m''
Years 0 1
Post Tax cashflows -127.5 -36.88
Adjustments
Add after tax interst
Add back Depreciation
Add back Indirect cost
Deduct infrastructure cost
Deduct site clearance cost
Tax savings on balancing allowance
Adjusted Cashflows -127.5 -36.88
NPV 29.48
IRR 16%
MIRR 13%
Reasons
1 Add back interest because it is already part of Cost of capital
2 Add back depreciation because it is no cash expense and not
3 Add back indirect cost because it is not a relevant cost
4 Deduct infrastructure cost because it is incurring directly due
5 Deduct site clearance cost because it is due to this project
w-1
Years 0 1
WDV 150.00 125.00
First year allowance 50% 75.00 25.00
Regular allowance 25% 18.75
Total Allowance 75.00 43.75
Part ( b ) Appendix 2
'$ m'' '$ m'' '$ m''
Years 0 1
Adjusted Cashflows -127.5 -36.88
10% 1 0.9090909
PV cashflows -127.5 -33.527273
Cumulative cashflows -127.5 -161.02727
Discounted pay back 4.5 years
Project Duration
'$ m'' '$ m'' '$ m''
Years 0 1
PV cashflows
Proportion of each year
Weighted avg years
Duration 3.55487413539978
'$ m'' '$ m'' '$ m'' '$ m'' '$ m''
2 3 4 5 6
44 68 60 35 20
2.8 2.8 2.8 2.8 2.8

2.8 2.8 2.8 2.8 2.8
5.6 5.6 5.6 5.6 5.6
-2.8 -2.8 -2.8 -2.8 -2.8
-3.5
3.68
52.4 76.4 68.4 43.4 28.58
it is already part of Cost of capital

ause it is no cash expense and not relevant
ause it is not a relevant cost
because it is incurring directly due to this project
because it is due to this project
2 3 4 5 6
81.25 60.94 45.70 34.28 25.71
20.31 15.23 11.43 8.57 6.43

20.31 15.23 11.43 8.57
remaining WDV 19.28
Scrap value 7
Unclaimed Balancing allowance 12.28
Tax saving @ 30% 3.68
'$ m'' '$ m'' '$ m'' '$ m'' '$ m''
2 3 4 5 6
52.4 76.4 68.4 43.4 28.58
0.8264463 0.7513148 0.6830135 0.620921323059155 0.5644739
43.305785 57.400451 46.71812 26.9479854207673 16.132665
-117.7215 -60.32104 -13.60292 13.3450689533129
4 years 0.5046944
'$ m'' '$ m'' '$ m'' '$ m'' '$ m''
2 3 4 5 6
43.305785 57.400451 46.71812 26.9479854207673 16.132665 190.505
0.227321 0.3013068 0.245233 0.141455523408548 0.0846837
0.454642 0.9039204 0.9809321 0.707277617042741 0.5081021
Pa pe r s t
85 90 0.05 0.2 5
D1 0.654814
D2 0.2076
ND1 0.743706
ND2 0.582229
C 22.40536
P 7.49743
Risk Adjusted WACC
Ungear the proxy company thrillall
Be 1.45
Equity value 1544
Debt value 427.8
Ba 1.21
Regear it with Sleepon Gearing
Equity 61.40%
Debt 38.60%
Be 1.74889493135889
Calculate Ke using Capm

Rf 3.50%
Rm 10%
KE 14.87%
Kd 5.25%
Calculating WACC
Weightage Cost
Equity 61.40% 14.87% 9.13%
Debt 38.60% 5.25% 2.03%
WACC 11.16%
How to calculate NPV

Year 0 1 2 3
Sales
Variable cost
Fixed cost
Capital allowance
Taxable profit
Capital allowance
Working capital change
Investment
Scrap value
Net cashflows -1000 300 400 200
NPv @ 10% 95.08

95.08
IRR 14%
MIRR 13%
how to calculate mv of Bond

par value 100
Coupon 8%
years 4
Rf 5%
Spread 0.50%
Calculate MV
years 1 2 3 4
Cashflows 8 8 8 108
MV $108.76
How to calculare YTM of bond

par value 100
Coupon 8%
years 4
MV 104.00
RV at par
Years 0 1 2 3
Cashflows -104 8 8 8
YTM 6.82%
How to calculate KD of redeemable bond
par value 100

Coupon 8%
years 4
MV 104.00
RV at par
tax 30%
Years 0 1 2 3
Cashflows -104 5.6 5.6 5.6
KD 4.49%
4
500
4
108
4
105.6

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Investment Side

Sales 3250 4687 6758 7309

Francs/EUR 23.32 27.44 30.63 32.71

Sales 658560 735120 785040

Local Costs 338000 388700 427570

German component 41160 47323.35 52053.0585

working capital require 170000 204000 234600 258060

If there is no block remiitance

IF there is no restriction PV 15188

FCFE 114 143 173

Year Capital allowance

42485.23 43759.78 45072.58

19000 23000 27000

Maintenance cost 15000 19000 23000 27000

Debt raised 816.3265

price @ eu inflation 735 771.75 802.62 834.7248

Variable cost/unit @ YR inflation 19471.2 22333.4664 24522.14611 26925.3164

component cost @ $ inflation 288.4 297.052 305.96356 315.142467

Component cost 5195.526 19063.6092 31827.85933 17233.2507

working capital requirement 9600 11712 13433.664 14750.16307

contribution @ $ inflation 123.6 127.308 131.12724 135.061057

Parent co Cash flows

Base Case NPV 1,922

Units 12000 22000 47000

Variable cost/unit @ 9% 1350 1472 1604

component cost / unit @ 3% 7 7.21 7.43

pv of all cashflows $829.03

Debt 62000 59000 56000 53000 50000

Debt/Equity ratio 321% 253% 200% 158% 125%

Debt/(debt + euity) 73% 61% 47% 32%

PV of all inflows $24,822.99

1025 1066 1119.3 1175.265

Mv of equity 360000 MV of debt 126432

Ba of repair & maintenance 0.65

Proportion of Travel division 70% Ytm 4.40%

Exchange rate $/₤ 1.5259902 1.560232 1.595242 1.631038 1.667637 1.705057

Home currency Cashflows 0 -8041.9686 543.3395 1083.765 3331.107 1225.651 16485.59

Discount factor 0.9157509 0.8386 0.767948 0.70325 0.644001 0.589745

Contribution 1840.695 2358.39 4351.23 2973.341 3047.674

Residual value 10306.94

Real COC 4.20%

Mv of equity @ 60% 6719.216

Share exchange ratio 2.0

after implementing the proposal

Borrow from market 5.60% 2,352,000

Interest rate Swap

Distribute the savings

After Swap cost

lock-in rate 1.3682

Expected receipt EUR 14.6177459436

premium cost USD 413000 323350

It is assumed that option will be exercised

premium cost USD 409500 320562.5

It is assumed that option will be exercised

unhedged amount usd 110000 162500

funds required after 6 months MSH million 2640

funds required in eur after 6 months 21.83612056633

Interest rate Future

Actual Borrowing from market 5.75 431,250 4.75