ENNEA CO (JUN 12)

Part (a) is more of a straight financial accounts question rather than financial management. The current retained earnings are $123,000 as given in the question. If proposal 1 is implemented, the two things will happen. One is that the profit will fall from 26,000 to 24,720, i.e. by $1,280 and therefore the retained earnings will fall by the same amount. The other is that they will be using the $20M rated from the debt to repay shares. Given that the share price is $3.20 per share it means that they will buy back 20/3.2 = 6.25M shares. As per financial accounting 'rules', share capital will reduce by the nominal value of these shares (6.25M x 0.40 = $2.5M) and the remaining 20 - 2..5 = 17.5M will be taken from retained earnings. Therefore the new retained earnings will be 123,000 - 1,280 - 17,500 = $104,220. (Again, this is financial accounts and as will all of the professional papers the examiner is allowed to examine anything from any of the other papers. However for AFM this really only ever requires financial accounting knowledge.)

For securitisation, if you use the search box on this page you will find several previous replies from me explaining securitisation. This one should help you: https://opentuition.com/topic/securitisation-6/

Good day sir, may i know how for proposal 3 interest saved on lower coupon the answer is showing $136,000 because i am getting $13,560,000 ;( i have calculated several time but i not getting the value {$113m * 0.15(1-0.2)}

It is multiplied by 0.15% (not by 0.15). The answer is therefore $135,600. Given that the examiners answer is showing everything in $'000's, it is 136 to the nearest $ thousand.

Good day sir i just notice the percentage but usually when percentage are given for example 15% when calculating time we can put it as 0.15 but why this question we need to put additional percentage 0.15%, it means it will be 0.0015. I have notice in this question only the rate of return is applying like this...

The question says that the coupon rate is reduced by 15 basis points. 15 basis points is 0.15%, and taking 0.15% is the same as multiplying by 0.15/100.

Oh my god, i not sure how i overlooked that point sir. Thank you for pointing out to me sir. :)

You are welcome :-)