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Q1 – APV for 21 marks!!! Got NPV and APV negative. KE 12%.
Discussion of difference between APV and NPV and why APV is better. Investment decision.Q2 – BS PL analysis of firm with ratios and trends for 20 marks out of which 10 marks is given for ratios and trends. Also, it was required to identify/state missing information in order to expand the analysis.
Q3 – Acquisition with free cash flow to equity. 2 scenarios from CEO and finance director (CEO seemed to be showing behavioral finance). Maximum amount to be paid to target’s directors. Discussion of 3 strategies against the takeover provided by the directors of the target company (legitimacy and effectiveness) – finding competitor, some kind of questionnaire and legal obstacles by creating a negative assumptions on employees and clients.
Q1 was about Joshua Co acquiring Fraser Co. Huge chunk of theory including agency issue, concerns and assumptions of management and share buyback in the context of liquidity issues, potential covenant breach and so on.
Q2 was about Numium Co regarding the NPV with positive 1.4 million result. Capital rationing (totally forgot about multi period capital rationing) and imposing soft capital rationing as the company was not using hard capital rationing.
Q3 Interest rate hedge of USD 96 million. FRA, Interest rate future, Collar and Swap. It was quite a disaster for me(((
There was a gearing level 30 debt 70 equity pre-acquisition. The post-acquisition kept the same level of gearing. It was written in a tricky manner. Overall, my WACC was 10%.
Passed with 55%.
I would like to thank Chris Barlow! Chris, you are the best!!! Keep it up!!!
