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Question 1 (a)
The model answer given, in the middle of the page:
“The proxy asset beta for Mercury is as follows:”
(0.67 x 1.387) + (0.33 x 0.75) = 1.177
Why is the ratio of 0.67 of Jupiter Beta and 0.33 of financial service Beta? Is there any implication from the question?
Question 2 (a)
Model answer under “Efficiency” section, after the “Ratios” there is one sentence stating “………. committing an additional $21 million of cash compared with 2006 to the maintenance of working capital.”
May I know to to get this $21?
Question 3 (a)
The model answer, under the interest rate parity calculation:
1. How to get the figure 1.6244 in the formula application? Is it the bid/offer spread?
2. The last sentence stating SFr 1.5 million, is it not Euros 1.5 million from the question?
3. The first paragraph stating at any borrowing rate less than SFr LIBOR + 7, how can I draw this conclusion?
Question (a)
There are quite a number of figures I could not get, rather confusing to me, spent hours and still could not figure them out, I think I need to seek for your clarification on how to get these numbers:
1. 1st table – the written down value of 31
2. 1st table – the profit on sale of equipment of 8.90, is it 40 – 31?
3. 2nd table – the capital allowance saving – 120, 48, 28.8, 17.28…..
4. 2nd table – the sale of capital equipment of 2.67, is it 8.9 (profit on sale of equipment) x 0.30 (taxation)?
5. 3rd table – new capital introduced of -816.32
6. 3rd table – tax saving on annual interest 17.63
7. 3rd table – discounted value of tax shield on interest – 71.63, 15.87, 15.06, 14.29…..
8. 3rd table – cost of financing, is it 800 x 1.02 (2% transaction cost)?I feel embarrassing asking them, but I think all the figures are somehow link and I do not know how.
Q1 – the last line of the second paragraph of the question says that financial services account for one third of the companies revenue (i.e. 0,33)
Q3 (1) 1.6244 is a typing error in the answer – it should be 1.6242 (the closing mid-point)
(2) Yes – it should be EUR 1.5M
(3) The 7 basis points is the difference between the 2.13% and the current LIBOR of 2.06%Question (a) – sorry, but I cannot make out which question you are asking about 🙁
Sir,
I am sorry about that.
The last one is referring to question 5 (a), in the model answer there are 3 tables, so I indexed them as 1st, 2nd and 3rd table for your ease of reference.
3 The capital allowances are 50% of 800 in the first year – 400, so the tax saving at 30% is 240.
From then on it is 40% reducing balance (so the next year is 800 – 400 = 400 x 40% = 160. So the tax saving at 30% is 48, and so on.
1 The tax written down value at the end is 31.10
2 The profit on sale = 40 – 31.10 = 8.90
4 The balancing charge (30% x 8.90)
5 There are issue costs of 2% of the amount raised, so for every 100 raised, only 98 is available to invest. So to have 800 means raising 800 x 100/98 = 816.32
6 Interest is 7.2% x 816.32. Tax saved is 30% of this,
7 He has discounted at LIBOR of 5.4% (as risk free rate). They are all discounted for 1 extra year because of the 1 year tax delay.
8 See 5. It is 2% x 816.32
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