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(a) Explain the exposure Fondir Co faces with respect to the falling sales revenue from Italy and
suggest how this exposure could be managed.

(6 marks)

(b) Prepare a report for the Board of Directors (BoD) of Fondir Co which:

(i) Calculates the amounts receivable in $ from Lothil in four months’ time, using the over-the-counter
(OTC) forward rate and the OTC option;

(7 marks)

(ii) Calculates the interest return in $ of the cash flows from Lothil when futures contracts are used to
hedge the interest rate fluctuations of 0.5%. Calculations should include the number of futures
contracts needed and the gain or loss in the futures market in $;

(9 marks)

(iii) Comments on the results obtained in (b)(i) and (ii), and addresses the queries raised by the BoD
with respect to alternative methods to hedge the receipt and the margin requirements;

(9 marks)

(iv) Discusses if it would be beneficial for Fondir Co to manage its financial risks, and whether or not
the company should communicate its risk management approach to its stakeholders.

(9 marks)

Professional marks will be awarded for the demonstration of skill in communication, analysis and evaluation,
scepticism and commercial acumen in your answer.

(10 marks)

1 of 1 2/14/2023, 8:16 AM
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(a) Estimate:

• the equity value of the combination of Propleis Co and Adictcan Co; and
• the benefits which would be gained by Propleis Co’s shareholders from the acquisition

(10 marks)

(b) Discuss the assumptions made in the calculations in (a), including whether the expected synergies
are likely to be achieved.

(6 marks)

(c) Explain the actions which Propleis Co’s board can take to ensure that the companies are integrated
successfully and synergies are realised.

(4 marks)

Professional marks will be awarded for the demonstration of skill in analysis and evaluation, scepticism and
commercial acumen in your answer.

(5 marks)

1 of 1 2/14/2023, 8:18 AM
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(a) Evaluate the financial acceptability of the proposed investment.

(12 marks)

(b) Discuss, with reference to Tonpantau Co’s proposed investment:

• how real options build on traditional net present value analysis when evaluating investment
decisions; and
• the problems with incorporating and valuing real options. Your answer should make specific
reference to the Black-Scholes model.

(8 marks)

Professional marks will be awarded for the demonstration of skill in analysis and evaluation, scepticism, and
commercial acumen in your answer.

(5 marks)

1 of 1 2/14/2023, 8:19 AM