1. Mark Fielding-Pritchard
Daron
Mark Fielding-Pritchard
mefielding.com

2. Cost of Capital Add inflation Risk free (1.05)(1.04) 9.2
Market rate (1.05)(1.1)
15.5
𝐾 𝑒 ( )
17.075
MV of Equity
18.4
Debt 14
32.4
𝐾 𝑑
9.2%
WACC
[9.2x14/32.4x70%]+[17.075x
18.4/32.4]= 13%
mefielding.com

3. A Wins
2004
2005
2006
2007
2008
2009
Sales 28 29 26 22 19 VC
-17
-18
-16
-14
-12 FC -3
Depn -4 -2 -1 4 5 3
Tax
-1.2
-1.5
-0.9 2 1 WC
6.8
7.5
7.8
7.1
6.1
2.8
Disc 13%
0.885
0.783
0.693
0.613
0.543
1.91 PV
6.02
5.87
5.41
4.35
3.31
5.35
30.31
mefielding.com

4. Discount Rate Ungeared Cost of Equity 1.25[18.4/(18.4+14)]= 0.82
9.2+ ( )0.82= 14%
Cost of debt
9.2%
mefielding.com

5. Part A
2004
2005
2006
2007
2008
Rev 9 10 11 12 13 VC 6 7 8 FC 2 1 3
Tax
-0.3
-0.6
-0.9 WC -1
End Value
1.4
1.1
12.1
14%
0.877
0.769
0.675
0.592
0.519
-0.26
1.08
0.95
0.65
6.28
8.69
-9.00
-0.31
mefielding.com

6. APV Cash flow (0.3) Debt Shield (9m/0.98) x 9.2% x 0.3x 3.89= 0.225
Issue Costs
(0.184)
(0.25)
mefielding.com

7. a) discussion
Cash flow only looks at 5 years so value of company is likely to fall
May be inaccuracies in figures
Risk/ discount rate may change
1) Offer- the offer figure looks low at 20m, they should explore the possibility of negotiating this
2) What is the point of this? Running the company in to the ground achieves nothing
From a business perspective explore new products, so Ansoff style analysis
New product Existing market
Existing product Existing market (presumably not attractive)
New product New market
Existing product, new market

8. a) discussion APV is positive so in principle they should do it
However no experience
Hotels are hugely risky
High inflation will have a negative impact on business, though may increase tourism
End price is key to calculation

9. Convertible Bond

10. Convertible Bond Used in 2 scenarios
1) Where the directors believe the company shares are undervalued and they want to limit the number of shares issued on an equity issue- less EPS dilution
2) Where the investor wants equity but is restricted from investing in equity, UN Pension Fund, religious organisations

11. b) Bond Current share price 92c
Declining market so chances are price will remain below $1
Therefore bond becomes redeemable
Hotels very risky

12. c) takeovers Points when announcements must be made
Points when offers must be made, 30% in UK
Directors must act in shareholders interests
Cash must be 1 offer
If offer is greater than x% of company size (offeror) share holders must approve
If offer is rejected then predator must sell its shares (subject to limits)