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Q3) 13 marks question of mergers gain% calculation of raver co and erena co under cash offer, share to share offer and mixed offer.
My answer under cash offer erena co which was a target co was getting 3.2*50m shares=160m which was only 12.28% of the marker value of erena co and it was not approved by the CEO as erena co sHAREholders wanted 25% Premium on MV.
Share to share offer- 2/5*50m shares=20m shares of 30m shares raver co (acquirer co) amounted to 141.2m with MV 7.06 per share which is not in line with either raver co shareholders due to target co having 66.67% holding which raver co does not want as it wants to hold the majority shareholding and erena co getting loss of 0.9% at 141.2m with MV of 142.5m
Mixed offer- cash was 81m and shares given were 86m totaling to erena co getting 16% premium and 66.67%holding to raver co with only 10m shates issued to erena co.
So mixed offer was appropriate
B) rights issue- i suggested the directors of raver co to use overdraft facility to fund the 7m rights issue so as to avoid the increased gearing ratio as co is already standing at 31% gearing, if it takes mezanine debt the gearing will reach 43% which is closer to 44% of industry average and might lead to break 50% bank covenant for NCL.
Q2) a) 13 marks NPV where my npc was positive with 13.1m and suggested doing sensitivity analysis as slight change in the assumptions might make the project negative. Also gave 3-4 assumptions that were being used in the question.
B) 7 marks question on issues of director A and DIRECTOR B- with suggesting that to director A to use rights issue to avoid using debt so that gearing ratio does not rise significantly
And suggested director b to motivate the management with introduction of rewards related to performance of the project and also give training to management with recruiting new hires for shortage of time resourceI had this paper kindly confirm whether my answers were correct or not, even though i left 30 marks dividend capacity question in the Q1 As u had not studied it.
Q1. A) 6 marks factors to decide centralisee treasury function-
Ans i gave, loss of autonomy leading to less motivation in regional offices, efficiency overall due to cost reduction, centralised control so that funds can be diverted to regions which need it the most and hedging congruence with centralised treasury function leading to cost reduction.B) I left 30 marks dividend capacity question but did the frwd contract n future contract, but was not sure of initial margin so left that too. Chose frwd contract as it was giving $93.35m whereas futures was giving $92.75m
@nicolita Yeah I got that, I chose to sell externally first and then the spare capacity to c div as otherwise it will make a loss of v.c on lamps. And on the div c side it should buy 50k from external supplier and the rest of 70k spare from div L/lamp to maximize the organisations profit. I hope this is correct
