题目内容
Proteus Co, a large listed company, has a number of subsidiaries in different industries but its main line of business is developing surveillance systems and intruder alarms. It has decided to sell a number of companies that it considers are peripheral to its core activities. One of these subsidiary companies is Tyche Co, a company involved in managing the congestion monitoring and charging systems that have been developed by Proteus Co. Tyche Co is a profitable business and it is anticipated that its revenues and costs will continue to increase at their current rate of 8% per year for the foreseeable future.
Tyche Co’s managers and some employees want to buy the company through a leveraged management buy-out. An independent assessment estimates Tyche Co’s market value at $81 million if Proteus Co agrees to cancel its current loan to Tyche Co. The managers and employees involved in the buy-out will invest $12 million for 75% of the equity in the company, with another $4 million coming from a venture capitalist for the remaining 25% equity.
Palaemon Bank has agreed to lend the balance of the required funds in the form. of a 9% loan. The interest is payable at the end of the year, on the loan amount outstanding at the start of each year. A covenant on the loan states that the following debt-equity ratios should not be exceeded at the end of each year for the next five years:
As part of the management buy-out agreement, it is expected that Proteus Co will provide management services costing $12 million for the first year of the management buy-out, increasing by 8% per year thereafter.
The current tax rate is 25% on profits and it is expected that 25% of the after-tax profits will be payable as dividends every year. The remaining profits will be allocated to reserves. It is expected that Tyche Co will repay $3 million of the outstanding loan at the end of each of the next five years from the cash flows generated from its business activity.
Required:
(a) Briefly discuss the possible benefits to Proteus Co of disposing Tyche Co through a management buy-out. (4 marks)
(b) Calculate whether the debt-equity covenant imposed by Palaemon Bank on Tyche Co will be breached over the five-year period. (9 marks)
(c) Discuss briefly the implications of the results obtained in part (b) and outline two possible actions Tyche Co may take if the covenant is in danger of being breached. (5 marks)
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Section B – TWO questions ONLY to be attempted
Levante Co has identified a new project for which it will need to increase its long-term borrowings from $250 million to $400 million. This amount will cover a significant proportion of the total cost of the project and the rest of the funds will come from cash held by the company.
The current $250 million borrowing is in the form. of a 4% bond which is trading at $98·71 per $100 and is due to be redeemed at par in three years. The issued bond has a credit rating of AA. The new borrowing will also be raised in the form. of a traded bond with a par value of $100 per unit. It is anticipated that the new project will generate sufficient cash flows to be able to redeem the new bond at $100 par value per unit in five years. It can be assumed that coupons on both bonds are paid annually.
Both bonds would be ranked equally for payment in the event of default and the directors expect that as a result of the new issue, the credit rating for both bonds will fall to A. The directors are considering the following two alternative options when issuing the new bond:
(i) Issue the new bond at a fixed coupon of 5% but at a premium or discount, whichever is appropriate to ensure full take up of the bond; or
(ii) Issue the new bond at a coupon rate where the issue price of the new bond will be $100 per unit and equal to its par value.
The following extracts are provided on the current government bond yield curve and yield spreads for the sector in which Levante Co operates:
Required:
(a) Calculate the expected percentage fall in the market value of the existing bond if Levante Co’s bond credit rating falls from AA to A. (3 marks)
(b) Advise the directors on the financial implications of choosing each of the two options when issuing the new bond. Support the advice with appropriate calculations. (7 marks)
(c) Among the criteria used by credit agencies for establishing a company’s credit rating are the following: industry risk, earnings protection, financial flexibility and evaluation of the company’s management.
Briefly explain each criterion and suggest factors that could be used to assess it. (8 marks)
可口可乐花费巨额广告费，以图为其“经典可乐”(ClassicCoke)树立积极形象，这属于：
Alecto Co, a large listed company based in Europe, is expecting to borrow €22,000,000 in four months’ time on 1 May 2012. It expects to make a full repayment of the borrowed amount nine months from now. Currently there is some uncertainty in the markets, with higher than normal rates of inflation, but an expectation that the inflation level may soon come down. This has led some economists to predict a rise in interest rates and others suggesting an unchanged outlook or maybe even a small fall in interest rates over the next six months.
Although Alecto Co is of the opinion that it is equally likely that interest rates could increase or fall by 0·5% in four months, it wishes to protect itself from interest rate fluctuations by using derivatives. The company can borrow at LIBOR plus 80 basis points and LIBOR is currently 3·3%. The company is considering using interest rate futures, options on interest rate futures or interest rate collars as possible hedging choices.
The following information and quotes from an appropriate exchange are provided on Euro futures and options. Margin requirements may be ignored.
Three month Euro futures, €1,000,000 contract, tick size 0·01% and tick value €25
March 96·27
June 96·16
September 95·90
Options on three month Euro futures, €1,000,000 contract, tick size 0·01% and tick value €25. Option premiums are in annual %.
It can be assumed that settlement for both the futures and options contracts is at the end of the month. It can also be assumed that basis diminishes to zero at contract maturity at a constant rate and that time intervals can be counted in months.
Required:
(a) Briefly discuss the main advantage and disadvantage of hedging interest rate risk using an interest rate collar instead of options. (4 marks)
(b) Based on the three hedging choices Alecto Co is considering and assuming that the company does not face any basis risk, recommend a hedging strategy for the €22,000,000 loan. Support your recommendation with appropriate comments and relevant calculations in €. (17 marks)
(c) Explain what is meant by basis risk and how it would affect the recommendation made in part (b) above. (4 marks)
比较程序化决策与非程序化决策，并给出着两种决策类型的商业案例。
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