ACCA P4考试真题答案.docx
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ACCA P4考试真题答案.docx
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ACCAP4考试真题答案
Answers
ProfessionalLevel–OptionsModule,PaperP4
AdvancedFinancialManagement
December2014Answers
1
(a)
Riskdiversification,especiallyintodiversebusinesssectors,hasoftenbeenstatedasareasonforundertakingmergersand
acquisitions(M&As).Likeindividualsholdingwell-diversifiedportfolios,acompanywithanumberofsubsidiariesindifferent
sectorscouldreduceitsexposuretounsystematicrisk.Anotherpossiblebenefitofdiversificationissometimesarguedtobe
areductioninthevolatilityofcashflows,whichmayleadtoabettercreditratingandalowercostofcapital.
Theargumentagainstthisstatesthatsinceindividualinvestorscanundertakethislevelofriskdiversificationbothquickly
andcheaplythemselves,thereislittlereasonforcompaniestodoso.Indeed,researchsuggeststhatmarketsdonotreward
thisriskdiversification.
Nevertheless,forNaharaCo,undertakingM&Asmayhavebeneficialoutcomes,especiallyifthesovereignfundhasitsentire
investmentintheholdingcompanyandisnotwell-diversifieditself.Insuchasituationunsystematicriskreductioncanbe
beneficial.Thecasestudydoesnotstatewhetherornotthesovereignfundsareinvestedelsewhereandthereforeadefinitive
conclusioncannotbereached.
IfNaharaCoisabletoidentifyundervaluedcompaniesandafterpurchasingthecompanycanincreasethevalueforthe
holdingcompanyoverall,byincreasingthevalueoftheundervaluedcompanies,thensuchM&Asactivitywouldhavea
beneficialimpactonthefundsinvested.However,forthisstrategytowork,NaharaComust:
(i)
Possessasuperiorcapabilityorknowledgeinidentifyingbargainbuysaheadofitscompetitorcompanies.Toachieve
this,itmusthaveaccesstobetterinformation,whichitcantapintoquicker,and/orhavesuperioranalyticaltools.
NaharaCoshouldassesswhetherornotitdoespossesssuchcapabilities,otherwiseitsclaimisnotvalid;
(ii)
Ensurethatithasquickaccesstothenecessaryfundstopursueanundervaluedacquisition.EvenifNaharaCo
possessessuperiorknowledge,itisunlikelythatthiswilllastforalongtimebeforeitscompetitorsfindout;thereforeit
needstohavethefundsready,tomovequickly.Giventhatithasaccesstosovereignfundsfromawealthysource,
accesstofundsisprobablynotaproblem;
(iii)Setamaximumceilingforthepriceitiswillingtopayandshouldnotgooverthisamount,orthepotentialvaluecreated
willbereduced.
If,initsassessment,NaharaCoisabletoshowthatitmeetsalltheaboveconditions,thenthestrategyofidentifyingand
pursuingundervaluedcompaniesmaybevalid.
(b)
InasimilarmannertotheCompetitionandMarketsAuthorityintheUK,theEuropeanUnion(EU)willassesssignificant
mergersandacquisitions’(M&As)impactoncompetitionwithinacountry’smarket.Itwill,forexample,usetestssuchas
worldwideturnoverandEuropeanturnoverofthegroupaftertheM&A.ItmayblocktheM&A,ifitfeelsthattheM&Awill
givethecompanymonopolisticpowersorenableittocarveoutadominantpositioninthemarketsoastonegativelyaffect
consumerchoiceandprices.
SometimestheEUmayaskforthecompanytosellsomeofitsassetstoreduceitsdominantpositionratherthannotallow
anM&Atoproceed.ItwouldappearthatthismaybethecasebehindtheEU’sconcernandthereasonforitssuggested
action.
(c)
ReporttotheBoardofDirectors,AvemCo
ProposedacquisitionofFugaeCo
ThisreportevaluateswhetherornotitisbeneficialforAvemCotoacquireFugaeCo.Initiallythevalueofthetwocompanies
isdeterminedseparatelyandasacombinedentity,toassesstheadditionalvaluecreatedfrombringingthetwocompanies
together.Followingthis,thereportconsidershowmuchNaharaCoandAvemCowillgainfromthevaluecreated.The
assumptionsmadetoarriveattheadditionalvaluearealsoconsidered.Thereportconcludesbyconsideringwhetherornot
theacquisitionwillbebeneficialtoAvemCoandtoNaharaCo.
Appendix1showsthattheadditionalvaluecreatedfromcombiningthetwocompaniesisapproximately$451·5million,of
which$276·8millionwillgotoNaharaCo,astheownerofFugaeCo.Thisrepresentsapremiumofabout30%whichis
theminimumacceptabletoNaharaCo.ThebalanceoftheadditionalvaluewillgotoAvemCowhichisabout$174·7million,
representinganincreaseinvalueof1·46%[$174·7m/$12,000m].
Appendix2showsthatacceptingtheprojectwouldincreaseFugaeCo’svalueastheexpectednetpresentvalueispositive.
AftertakingintoaccountLumiCo’soffer,theexpectednetpresentvalueishigher.Therefore,itwouldbebeneficialfor
FugaeCototakeontheprojectandacceptLumiCo’soffer,ifthetourismindustrydoesnotgrowasexpected,asthiswill
increaseFugaeCo’svalue.
Assumptions
Itisassumedthatallthefiguresrelatingtosynergybenefits,betas,growthrates,multipliers,riskadjustedcostofcapitaland
theprobabilitiesareaccurate.Thereisconsiderableuncertaintysurroundingtheaccuracyofthese,andinadditiontothe
probabilityanalysisconductedinappendix2andtheassessmentsofvalueconductedinappendix1,asensitivityanalysisis
probablyneededtoassesstheimpactoftheseuncertainties.
Itisassumedthattherbmodelprovidesareasonablygoodestimateofthegrowthrate,andthatperpetuityisnotan
unreasonableassumptionwhenassessingthevalueofFugaeCo.
15
Itisassumedthatthecapitalstructurewouldnotchangesubstantiallywhenthenewprojectistakenon.Sincetheproject
issignificantlysmallerthanthevalueofFugaeCoitself,thisisnotanunreasonableassumption.
Whenassessingthevalueoftheproject,theoutcomesaregivenasoccurringwithdiscreteprobabilitiesandtheresulting
cashflowsfromtheoutcomesaregivenwithcertainty.Theremaybemoreoutcomesinpracticethantheonesgivenand
financialimpactoftheoutcomesmaynotbeknownwithsuchcertainty.TheBlack-ScholesOptionPricingmodelmayprovide
analternativeandmoreaccuratewayofassessingthevalueoftheproject.
ItisassumedthatFugaeCocanrelyonLumiCopayingthe$50matthebeginningofyeartwowithcertainty.FugaeComay
wanttoassessthereliabilityofLumiCo’sofferandwhetherformalcontractsshouldbedrawnupbetweenthetwocompanies.
Furthermore,LumiComaybereluctanttopaythefullamountofmoneyonceFugaeCobecomesapartofAvemCo.
Concludingcomments
AlthoughNaharaCowouldgainmorethanAvemCofromtheacquisitionbothinpercentagetermsandinmonetaryterms,
bothcompaniesbenefitfromtheacquisition.IfFugaeCoweretotakeontheproject,althoughitisvalue-neutraltothe
acquisition,NaharaCocouldaskforanadditional30%of$12·3millionvaluetobetransferredtoit,whichisabout
$3·7million.HencethereturntoAvemCowouldreducebyasmallamount,butnotsignificantly.
Aslongasallthepartiesaresatisfiedthatthevalueisreasonabledespitetheassumptionshighlightedabove,itwouldappear
thattheacquisitionshouldproceed.
Reportcompiledby:
Date:
Appendices
Appendix1:
AdditionalvaluecreatedfromcombiningAvemCoandFugaeCo
AvemCo,currentvalue=$7·5/sharex1,600millionshares=$12,000m
AvemCo,freecashflowtoequity=$12,000million/7·2=$1,666·7m
Thegrowthrateiscalculatedonthebasisoftherbmodel.
FugaeCo,estimateofgrowthrate=0·227x0·11=0·025=2·5%
FugaeCo,currentvalueestimate=$76·5millionx1·025/(0·11–0·025)=$922·5m
Combinedcompany,estimatedadditionalvaluecreated=
([$1,666·7m+$76·5m+$40m]x7·5)–($12,000m+$922·5m)=$451·5m
GaintoNaharaforsellingFugaeCo,30%x$922·5m=$276·8m
AvemCowillgain$174·7millionoftheadditionalvaluecreated,$451·5m–$276·8m=$174·7m
Appendix2:
ValueofprojecttoFugaeCo
Appendix2.1
Estimateofrisk-adjustedcostofcapitaltobeusedtodiscounttheproject’scashflows
Theprojectvalueiscalculatedbasedonitscashflowswhicharediscountedattheproject’sriskadjustedcostofcapital,to
reflectthebusinessriskoftheproject.
RekaCo’sassetbeta
RekaCoequityvalue=$4·50x80millionshares=$360m
RekaCodebtvalue=1·05x$340million=$357m
Assetbeta=1·6x$360m/($360m+$357mx0·8)=0·89
Project’sassetbeta(PAB)
0·89=PABx0·15+0·80x0·85
PAB=1·4
FugaeCo
MVe=$922·5m
MVd
Costofdebt=Riskfreerateofreturnplusthecreditspread
=4%+0·80%=4·80%
Currentvalueofa$100bond:
$5·4x1·048–1+$5·4x1·048–2+$5·4x1·048–3+$105·4x1·048–4=$102·14per
$100
MVd=1·0214x$380m=$388·1m
Project’sriskadjustedequitybeta
1·4x($922·5m+$388·1mx0·8)/$922·5m=1·87
Project’sriskadjustedcostofequity
4%+1·87x6%=15·2%
Project’sriskadjustedcostofcapital
(15·2%x$922·5m+4·8%x0·8x$388·1m)/($922·5m+$388·1m)=11·84%,say12%
16
Appendix2.2
EstimateofexpectedvalueoftheprojectwithouttheofferfromLumiCo
(Allamountsin$,000s)
Year
1
2
3
4
Cashflows
Discountfactorfor12%
Presentvalues
3,277·6
0·893
2,926·9
16,134·3
0·797
12,859·0
36,504·7
0·712
25,991·3
35,683·6
0·636
22,694·8
Probabilitiesareassignedtopossibleoutcomesbasedonwhetherornotthetourismmarketwillgrow.Theexpectednet
presentvalue(PV)iscomputedonthisbasis.
PVyear1:
$2,926,900
50%ofPVyears1to4:
$32,236,000
PVyears2to4:
$61,545,100
40%PVyears2to4:
$24,618,040
Expectedpresentvalueofcashflows=[0·75x(2,926,900+(0·8x61,545,100+0·2x24,618,040))]+[0·25x
32,236,000]
=[0·75x(2,926,900+54,159,688)]+[0·25x32,236,000]=42,814,941+8,059,000=$50,873,941
ExpectedN
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