ACCA国际注册会计师P4真题答案整理

1.Chrysos Co

(a)

what a reverse takeover involves

gain a listing without initial public offering (IPO)

merges with a listed ‘shell’ company

initially purchases equity shares

then issues new equity shares

thereby gain a listing

Advantages relative to an IPO

https://www.360docs.net/doc/2812517106.html,pleted much quicker

2.cheaper

3.potential benefits of going public

Disadvantages relative to an IPO

1.hidden liabilities

2.original shareholders sell their shares immediately

3.cannot develop the necessary expertise and knowledge of listing rules and regulations

4.not obtain a sufficient analyst coverage and investor following

(b)

Report to the board of directors (BoD), Chrysos Co

This report provides extracts from the financial position

It also contains an explanation of the process used

Finally, the report discusses

It is recommended management buy-out

receive $3,289m (appendix one)

Extract of Chrysos Co’s financial position following the restructuring programme

Estimate of Chrysos Co’s equity value following the restructuring programme

will be just over $46 billion(appendix three).

Process undertaken in determining Chrysos Co’s equity value

a growth rate of 4% on cash flows in perpetuity

discounted at Chrysos Co’s cost of capital (appendix two)

profit before depreciation and tax

deducting the depreciation and taxation

bank loan debt is then deducted (appendix three)

Assumptions made in determining Chrysos Co’s equity value

ungeared cost of equity

Modigliani and Miller’s proposition 2

accurate estimate of the free cash flows (appendix three)

changes in working capital are reckoned to be immaterial

Depreciation is assumed to be the same as the capital needed for reinvestment purposes

cash flows will grow in perpetuity over-optimistic

Impact of the restructuring programme on Chrysos Co and on the venture capital organisations (VCOs) venture capital organisations (VCOs)

the proportion of the VCOs’ equity share capital will increase to 40%

the share of the equity value increase by $9,229m,

which is 77·5% more than the total of the value of bonds cancelled and extra payment made (appendix four) the value of their investment has increased substantially

feasibility study

on the annual growth rate in cash flows of 4%

and the assumption of growth in perpetuity

the extent of additional value created indicate the impact is positive

Chrysos Co

raise extra debt finance

just under $9,600m of possible debt finance which could be accessed

raise just under an extra $7,800m debt funding

have $1,439 million in net cash available from the sale of the machinery parts manufacturing business unit.

given that the company has access to an extra $7,800m debt funding to expand its investment

it is likely that the restructuring programme will be beneficial

recommended tries to determine its current equity value and compares

shareholder groups need to be satisfied

about the potential negative impact of these situations

against the potential additional benefits

before proceeds with the programme.

Conclusion

creates an opportunity for Chrysos Co to have access to extra funding

The VCOs are likely to benefit financially as long as they are satisfied about the assumptions

However, Chrysos Co will need to ensure that

all equity holder groups are satisfied with the change in their respective equity holdings.

Report compiled by:

Date:

Appendices

Appendix One: Unbundling the manufacturing business unit

Option 1: Sale of assets

Net proceeds to Chrysos Co from net sale of assets of the manufacturing business unit are $3,102 million. Option 2: Management buy-out

Profit before depreciation, interest and tax

Depreciation (12% x 20% x ($7,500m + $5,400m))

Tax (18% x $530m)

Cash flows

Estimated value = ($435m x 1·08)/0·10 = $4,698m

Amount payable to Chrysos Co = 70% x $4,698m = $3,289m

option 2marginally better

Appendix Two: Calculation of cost of equity and cost of capital

Chrysos Co, estimate of cost of equity (Ke) and cost of capital (CoC)

Ke = Modigliani and Miller Proposition 2 (with tax)

CoC = The weighted average cost of capital

Appendix Three: Estimate of value

Profit before depreciation and tax

Depreciation (12% x ($6,000m + $5,520m)) (1,382)

Tax (18% x $4,498m)

Cash flows

Cost of capital to be used in estimating Chrysos Co’s value is 12% (appendix two) Estimated corporate value =The Growth Model

Estimated equity value = corporate value – debt

Appendix Four: Value created for VCOs

Value attributable to the VCOs

Value from increased equity ownership (this has doubled from 20% to 40%)

Value of unsecured bonds foregone by the VCOs

Additional capital invested by the VCOs

Total of additional capital invested and value of bonds forgone

Additional value 77·5% (or $4,029m)

(c)

As a private company,

Representatives from each groups

decisions will be made after agreement from all representatives

no single stakeholder group holds primacy over any other group

Once listed

have a large and diverse range of equity shareholders

pressure to engage in value creating activity

the equity shareholders’ needs will hold primacy over the other stakeholder groups the power of the supervisory board will diminish as a resul

3 Buryecs Co

(a)

currency swap

taking out a loan in €

making an arrangement with a counterparty in Wirtonia

which takes out a loan in $

pay the interest on the counterparty’s loan

and vice versa

Advantages

match the income,reducing foreign exchange risk

reverse the swap by exchanging with the other counterparty

Other methods of hedging risk may be less certain

cheaper than other methods of hedging

change debt profile,diversify risk and take advantage of probable lower future interest rates

Drawbacks

counterparty may default,pay interest in its currency,reduced by obtaining a bank guarantee

not worthwhile if the exchange rate is unpredictable

exchange rates largely determined by inflation rates

predicted inflation rate in Wirtonia is not stable

Inflation is increasing in Wirtonia

interest rates will increase as a result,

increasing Buryecs Co’s finance costs.

does not hedge the whole amount

Another method hedge the additional receipt in Year 3 and the receipts in the intervening years

exchange controls, no receipt at the end of Year 3

(b) (i)

Gain on swap

Bank fee

Gain on swap after bank fee

The swap arrangement will work as follows:

Advantage

Net result

After paying the 30 point basis fee, Buryecs Co will effectively pay interest at the bank rate – 0·3% and benefit by 90 basis points or 0·9%.

The counterparty will effectively pay interest at 5·2% and benefit by 60 basis points or 0·6%.

(ii)

Using the purchasing power parity formula to calculate exchange rates:

S1 = S0 x (1 + h c)/(1 + h b)

At Year 3, $5,000 million will be exchanged at the original spot rate as per the agreement and the remaining inflows will be exchanged at the Year 3 rate.

Swap translated at 0·1430

Amount not covered by swap translated at 0·1315

Cash flows in home country

Discount factor

Present value

The net present value of the project is €185 million, indicating that it should go ahead.

However, the value is dependent on the exchange rate, which is worsening for the foreign income.

also uncertainties about the variability of returns during the three years

in excess of their risk appetite and decline the opportunity

(c)

Receipt using swap arrangement = €715m + €329m = €1,044m

Receipt if transaction unhedged = $7,500m x 0·1315 = €986m

Predicted exchange rate at year 3 is €0·1315 = $1 or $7·6046 = €1

Options

Buy $ put options as receiving $

$7·75 exercise price

Do not exercise

Net receipt = €986m – (1·6% x $7,500m x 0·1430) = €969m

$7·25 exercise price

Exercise

Receipt from government = $7,500m/7·25 = €1,034m

Net receipt = €1,034m – (2·7% x $7,500m x 0·1430) = €1,005m

The $7·25 option gives a better result than not hedging, given the current expectations of the exchange rate. However, it gives a worse result than the swap even before the premium is deducted, because of the exchange rate being fixed on the swap back of the original amount paid.

These calculations do not take into account possible variability of the finance costs associated with the swap, caused by swapping into floating rate borrowing.

1 Morada Co

(a)

how business risk and financial risk are related

engage in some risky activities to generate returns in excess of the risk free rate of return exposed to differing amounts of business and financial risk

Business risk

depends on the decisions a business makes with respect to the services and products it offers consists of the variability in its profits

Financial risk

relates to the volatility of earnings due to the financial structure of the business

the shareholders or owners may not want to bear risk beyond an acceptable level

risk management strategy

risk identification, assessing

measuring through predicting, analysing and quantifying it

which risks to assume, avoid, retain and transfer

not aim to avoid all risks

controllability, frequency and severity of the risk

eliminate or reduce some risks through risk transfer

Risk mitigation is the process of transferring risks

Risk diversification is a process of risk reduction

(b)

Report to the board of directors (BoD), Morada Co

This report provides a discussion on

The main assumptions made in drawing up the estimates will also be explained.

The report concludes by recommending

Discussion

The table below

the cost of equity and the cost of capital (appendix 1)

the forecast earnings after tax for the coming year (appendix 2)

comparison purposes, figures before any changes

tax shield is reduced significantly due to the lower amount of debt borrowing

higher business risk

more than override the lower cost of debt

the benefit of the tax shield is also almost eroded by the increase in the cost of debt

as a percentage of non-current assets

Under the first director’s proposal

Under the second director’s proposal

Assumptions

1.weighted average of the asset betas

2. share price not changing

3. the current assets will change due to changes in the profit after tax figure

Recommendation

It is recommended that

The second results in

a lower return on investment

and a virtually unchanged cost of capital

first

increase the return on investment

but higher cost of capital

reduce risk, not achieved

caveat

assumptions made not reasonable, reduce the usefulness of the analysis

Report compiled by:

Date: