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Brampton was valued based on FCFE multiplied by its market cap:FCFE ratio. So I think the original value of Brampton was 4800m.
Under the best case scenario the ratio increased by 10% so multiplied this by the combined FCFE of the two companies along with the synergy of 25m. Based on this the value created was roughly 1400m which I stated was the max price they should pay as in theory you should never pay more than the additional value created. However they probably wanted you to refer to the price Shobdon were demanding as worked out in the first question (which I worked out to something like 1224m). Similar methodology for the worst case scenario which I think led to additional value less than the price Shobdon were demanding.
Frustratingly ran out of time and question 3 do my workings were so untidy and couldn’t answer the written parts in enough detail. Hopefully catch my exam marker on a good day where they can give me the benefit of doubt lol.
I had the same paper (unfortunately)…
For Q1 I believe you had to work out the spot yield rate for the 1 and 2 year government bond to give you a spot yield curve. For the two year bond this involved the use of IRR. Then for VIFs bond value you had to discount each years interest or redemptions at the discount factor of the spot yield + the credit spread for that year. This gave you MV of the bond which using IRR again gave you bond yield/pre-tax cost of debt. I think my answer came out at around 4.51% which felt reasonable although it took me way too long to work out that question. Also, have absolutely no idea if the above methodology is even correct to be honest!!
Wasn’t happy with the exam, it felt like I spent 50% of the time wondering how to answer the questions then actually answered them in just 90mins. Practically 30 marks on a bond yield/valuation of debt questions seems harsh and literally no questions in investment appraisal really threw me off as all resources I’ve used or watched have said that investment appraisal and risk management will definitely be tested on every exam.
It’s a miracle if I somehow manage to scrape 50 – so disappointing as I really felt prepared for this one but just crumbled when it mattered 🙁