FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 1 of 44 Student Number: Do not write your name anywhere in this examination booklet The University of Melbourne Department of Finance Final Examination – Semester 1, 2020 SUBJECT NUMBER: FNCE30002 SUBJECT NAME: CORPORATE FINANCE COMMON CONTENT: NONE EXAMINATION DURATION: 3 HOURS TECHNOLOGY TIME: 1 HOUR TOTAL MARKS: 100 NUMBER OF PAGES: 44 AUTHORISED MATERIALS: 1. This is an open book examination. You will receive this answer booklet by email and by downloading from the LMS assignment. 2. A calculator is permitted. INSTRUCTIONS TO STUDENTS 1. Write or type your student number in the box at the top right of this cover page. Do not write or type your name anywhere in this examination booklet. 2. Do not detach or delete any pages from this booklet. Examination booklets with missing pages will receive a zero mark for all the questions on that missing page. 3. This examination consists of eight (8) questions. Attempt all questions. 4. You may print this examination booklet, write out your answers in pen in the lined spaces provided and scan and .pdf your answers and upload to the LMS assignment and email to
[email protected] 5. You may type your answers into the lined spaces provided and then save the file and upload the file with your answers onto the LMS assignment and email the file to:
[email protected] 6. You have three hours to answer the questions and one hour for dealing with the technological requirements (technology time) of downloading, document saving and manipulation, document uploading to the LMS assignment and emailing the completed document. 7. Emails that “bounce” should be broken into multiple emails. 8. Your examination starts at 9.00AM Australian Eastern Standard Time and ends at 1.00PM Australian Eastern Standard Time on the 2nd July 2020. You need to upload your answers to the LMS assignment by 1.00PM Australian Eastern Standard Time on the 2nd July 2020. You should also email your completed answers to:
[email protected] by 1.00PM Australian Eastern Standard Time on the 2nd July 2020. 9. Do not write or type anything in the boxes labelled “Total Marks” and “Examiners Use Only”. 10. Your answers to all questions must be written on the ruled lines in this booklet or typed into a similar space as given by the ruled lines in this booklet and any other writing or typing will not be marked. 11. You may use page 2 for “rough work” but any “rough work” will not be marked. BAILLIEU LIBRARY 1. This examination is not to be lodged with the library. Examiners Use Only 1 (16) 2 (12) 3 (12) 4 (12) 5 (12) 6 (12) 7 (12) 8 (12) Total (100) FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 2 of 44 THIS PAGE MAY BE USED FOR “ROUGH WORK” FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 3 of 44 Question 1 (8 × 2 = 16 marks) Define the following terms: (i) Initial Public Offering (IPO) (ii) Pro-rata (iii) Signalling FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 4 of 44 Question 1 (cont.) (iv) Share purchase plan (SPP) (v) Pecking order theory (vi) Unfriendly Takeover FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 5 of 44 Question 1 (cont.) (vii) Thin capitalisation (viii) Administration Total Marks FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 6 of 44 Question 2 (12 marks) Pringles Company Limited operates under Modigliani and Miller assumptions. It has debt and equity. The company’s net operating income (operating earnings) in perpetuity equals $100 million per annum, with $25 million per annum payable to debt holders and the residue per annum paid to shareholders. The required return for debt is 5% p.a. and the required return to equity is 15% p.a. Assume all cash flows occur at the end of each year. Show all workings. (i) Calculate the value of debt (D) (ii) Calculate the value of equity (E) FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 7 of 44 Question 2 (cont.) (iii) Calculate the Weighted Average Cost of Capital (WACC = ko) (iv) Calculate the value of the company using the WACC calculated in (iii). FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 8 of 44 Question 2 (cont.) (v) Now assume the company reduces its debt by raising $200 million in new equity (still under Modigliani and Miller assumptions). Recalculate (i), (ii), and 0. In addition, calculate the cash flows per annum to debt and equity. FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 9 of 44 Question 2 (cont.) (vi) List the six main Modigliani and Miller assumptions (detailed in lecture 5). Total Marks FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 10 of 44 Question 3 (4 × 3 = 12 marks) Provide brief responses to the following: (i) Under Modigliani and Miller assumptions, explain how a company can maintain a fixed investment plan yet still pay a dividend to shareholders in excess of the company’s current earnings? FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 11 of 44 Question 3 (cont.) (ii) Discuss how a shareholder in a company that pays no dividends can create a ‘home-made dividend’. What might be the tax consequences of this action under a classical tax system? Assume a 50% discount on capital gains. FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 12 of 44 Question 3 (cont.) (iii) Considering agency theory, when might a company paying dividends be valued higher than one not paying dividends (given that shareholders can create ‘home- made dividends’)? FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 13 of 44 Question 3 (cont.) (iv) Lintner’s (1956) findings suggests that shareholders are more concerned with any changes made to dividend levels rather than the actual amount of the dividend itself. Why might this be so? Briefly explain. Total Marks FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 14 of 44 Question 4 (12 marks) Gannet Johns works for Golden River Limited, an airline, with flights from Fiji to Europe. Gannet knows the founder of the airline who started with two airplanes that were acquired second hand from a major US carrier. Up until now the company has grown by acquiring second hand aircraft which cost less to buy but have higher maintenance and fuel costs. Currently, Gannet noted the revenue cash flow for Golden River as $100 million per annum with aviation fuel costs at $40 million per annum, staff costs of $30 million per annum and all other costs (excluding interest and taxation) of $10 million per annum. Assume this as a per annum estimate of the expected cash flows if the company is operating the current old aircraft for the next two years. Gannet has taken a proposal to the Board of Golden River to immediately switch aircraft to a new fleet to save fuel costs. However, the cost of buying new planes is high. Gannet estimates the new fleet of aircraft will cost $500 million which is reduced by the estimated sales proceeds of $350 million for the old aircraft. The operating costs of the new aircraft should be significantly lower initially but over time as maintenance costs increase staff costs are estimated to increase and fuel costs may increase as the aircraft age. Gannet has estimated the optimal replacement is every 5 years, so has drawn up a table to estimate the cash flows (excluding interest and taxation) over the five year period if the company replaces the existing aircraft with new aircraft. All cash flows estimated in millions of dollars. Year Revenue Fuel Costs Staff Costs All other costs 1 $100 $20 $15 $10 2 $105 $20 $15 $11 3 $107 $20 $16 $11 4 $109 $22 $17 $11 5 $111 $23 $18 $12 Gannet wants to replace the aircraft today but the Board has asked for two other options to be considered: what if the new planes were replaced in one year or two years’ time (instead of today)? Assume the optimal replacement figures in the table above and the cost of the new aircraft and the sale proceeds from the old aircraft will remain unchanged for subsequent replacements. FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 15 of 44 As Gannet’s analyst you need to determine the discount rate for the project under a classical tax system and use this to discount the cash flows if the company decides to replace the aircraft today, in one year’s time or in two years’ time. Gannet says negotiations with the bank suggest a debt-to-equity (D/E) ratio of 25%. This is unlikely to change over the project life. The cost of debt is estimated at 9% p.a. before tax. You have analysed similar “pure-play” listed businesses and estimated an equity beta from stock market data (by linear regression) at 1.65. Golden River will operate the business under the classical tax system. The corporate tax rate is 30% and the company has a forecast payout ratio of 40% of earnings (with 60% retained for reinvestment) and has 30% non- resident investors. The expected return on the market portfolio () is estimated to be 8% p.a. with a risk free rate of 1% p.a. Depreciation is available for the aircraft on a straight-line basis over the estimated life of 20 years. Assume the market residual value of the aircraft is zero at the end of the aircrafts’ 20 year useful life. Estimate the before-tax adjusted NPVs for the replacement of the aircraft under the classical tax system under the assumptions: (i) Immediate replacement of the aircraft suggested by Gannet (ii) Replacement of the aircraft after one year’s time (iii) Replacement of the aircraft after two years’ time. Based upon your analysis above, which choice should Gannet suggest to the Board of Golden River? You may use the perpetuity replacement method or the equivalent annuity value (EAV) methodologies to arrive at the adjusted NPV for the three different replacement choices above. Assume all cash flows occur at the end of each period. Do not make any other assumptions or consider any other facts. FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 16 of 44 Question 4 (cont.) FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 17 of 44 Question 4 (cont.) FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 18 of 44 Question 4 (cont.) Total Marks FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 19 of 44 Question 5 (12 marks) On the 10th February 2020 Ramelius Resources (RMS) announced a takeover bid for Spectrum Metals (SPX). Spectrum Metals is the owner of the high-grade Penny West Gold Project. Penny West is one of the highest grade undeveloped gold projects in Australia with a gold resource of 799kt @ 13.9 g/t for 355,000 oz of gold. Penny West also offers significant exploration potential. Penny West is located approximately 150 km south-east of Ramelius’ Mt. Magnet mining and processing operations. This acquisition is in line with Ramelius’ philosophy of acquiring high quality assets within a radius of existing production hubs that facilitate mining and ore haulage without incurring significant on-site capital expenditure. The acquisition of Spectrum will allow Ramelius to add high grade resources to its current asset base and provide a near-term development opportunity to introduce an additional ore source to its production facility at Mt. Magnet. The proximity of the Mt. Magnet processing facility to Spectrum’s Penny West Gold Project provides potential to realise capital cost savings and operational synergies in developing the Penny West Gold Project. Ramelius Resources is offering 1 share in Ramelius Resources (RMS) for every 10 Spectrum Metals (SPX) shares and cash consideration of $0.017 per Spectrum Metals share. Based upon the volume weighted average price (VWAP) of Ramelius shares traded on the 7th February 2020, this provides for an offer price of $0.15 per Spectrum share. This is a 52% premium to Spectrum’s last closing price of $0.099 on the 7th February 2020. Ramelius Resources has a relevant interest of 4.9% of the outstanding shares in Spectrum Metals. “Shareholders of Spectrum will not only remain exposed to all the upside from exploration and development of Penny West but will benefit from having access to cash flow generating assets at Edma May, Mt. Magnet and Vivien while gaining exposure to the Marda and Tampia Hill projects through being a shareholder of the enlarged group.” Spectrum Metals Board has unanimously recommended that Spectrum shareholders accept the offer and have agreed to accept the offer in respect of all Spectrum shares they own or control in the absence of a superior proposal. Taken from the announcement to the ASX by Ramelius Resources and Spectrum Metals on 10th February 2020. FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 20 of 44 -0.25 -0.2 -0.15 -0.1 -0.05 0 0.05 0.1 -25 -20 -15 -10 -5 0 5 10 15 20 25 Ramelius Resources (RMS) [the acquirer] event study with takeover announcement on day 0 -0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 -25 -20 -15 -10 -5 0 5 10 15 20 25 Spectrum Metals [target] event study with takeover announcement on day 0. FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 21 of 44 Question 5 (cont.) (a) Would this be considered a friendly or unfriendly takeover bid? Briefly explain. (b) Can the takeover bid be made as an on market bid? FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 22 of 44 Question 5 (cont.) (c) Discuss the economic benefits of the takeover. FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 23 of 44 Question 5 (cont.) (d) First, discuss the wealth effects for takeovers on the target and the acquirer detailed in lecture 8. Then, reconcile the outcomes shown in the diagrams above (for Ramelius and Spectrum) with the wealth effects of takeovers (after announcement) detailed in lecture 8. FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 24 of 44 Question 5 (cont.) Total Marks FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 25 of 44 Question 6 (8+2+2=12 marks) Julius Caesar Limited is considering making a takeover bid for Marcus Aurelius Limited. Marcus Aurelius has $20 million in debt and 200 million shares on issue with a current stock price of $4.23 per share. The corporate tax rate is 30%. The equity beta for Marcus Aurelius has been estimated at 1.52 with a market risk premium (MRP) of 9% p.a. and risk free rate of 1.8% p.a. Assume a classical tax system after corporate tax and the company’s cash holdings earn no interest. The latest financial accounts for Marcus Aurelius Limited are as follows. Marcus Aurelius Limited Statement of Financial Performance (“Profit and Loss”) In millions Year Ending 30th June 2019 Year Ending 30th June 2018 Increase on prior year (% p.a.) Revenue $546 $525 +4% Cost of goods sold (COGS) $231 $220 +5% Gross profit $315 $305 +3.3% Selling, general and administrative (SGA) costs $50 $47 +6.4% EBITDA $265 $258 +2.7% Depreciation and Amortisation $21 $21 +0% EBIT $244 $237 +3% Interest $1 $1 +0 Profit before tax (PBT) $243 $236 +3% Taxation at 30% $73 $71 +2.8% Profit after tax (PAT) $170 $165 +3% Where EBITDA = Earnings Before Interest, Taxation, Depreciation and Amortisation EBIT = Earnings Before Interest and Taxation FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 26 of 44 Question 6 (cont.) Marcus Aurelius Statement of Financial Position (“Balance Sheet”) In millions At 30th June 2019 At 30th June 2018 Increase from prior year $ p.a. Assets Current assets Cash $10 $8 +$2 Accounts receivable $120 $115 +$5 Inventory $50 $45 +$5 Total current assets $180 $168 +$12 Non-current assets Property, plant and equipment (PPE) Gross amount $1,050 $1,000 +50 Less accumulated depreciation $541 $531 +10 Net amount of PPE $509 $469 +40 Intangible assets $200 $211 –11 Total non-current assets $709 $680 +29 Total Assets $889 $848 +41 Liabilities Current Liabilities Accounts payable $50 $55 –$5 Current portion of long term debt 0 0 0 Total current liabilities $50 $55 –$5 Non-current liabilities Long-term debt $20 $20 0 Provisions $5 $4 +1 Total non-current liabilities $25 $24 +1 Total Liabilities $75 $79 –$4 Net Assets $814 $769 +$45 Equity Issued ordinary shares $100 $100 0 Retained earnings $714 $669 +$45 Total Equity $814 $769 +$45 FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 27 of 44 Question 6 (cont.) Julius Caesar and Marcus Aurelius both operate in the same business sector as competitors in manufacturing Roman cement. Given this, Julius Caesar has estimated the benefits of the acquisition from cost savings of pre-tax $10 million per annum and in improved pricing of pre- tax $5 million per annum both into perpetuity. The competition authority has no concerns with the latter pricing benefits of the merger given the limited magnitude of the pricing increases. Marcus Aurelius has accumulated past tax losses of $100 million within a subsidiary company that it has so far been unable to use because it is in a different but complementary business of aggregates (to be used in the Roman cement to make concrete). Julius Caesar has a profitable aggregates business that is thought to pass the same business test so the $100 million in carried forward losses can be used at the end of the first year by Julius Caesar if the two companies combine. Multiple estimates from competitor companies in the cement and aggregates businesses at 30th June 2019 are as follows: Multiple Julius Caesar Pompey Octavius EBITDA 4.5 4.0 3.5 EBIT 4.9 4.3 3.83 FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 28 of 44 Question 6 (cont.) (i) Estimate the enterprise value and equity value of Marcus Aurelius as an independent “stand-alone” company by use of EBITDA, EBIT multiples and free cash flow (FCF) estimation. Use the average multiple of competitor companies (Julius Caesar, Pompey and Octavius), the most recent EBITDA, EBIT and net debt and also estimate the enterprise value using the highest and lowest multiples. Use EBIT to 30th June 2019 as the basis for your free cash flow (FCF) estimate with the growth rate determined by the EBIT changes from 30th June 2018 to 30th June 2019 denoted as “Increase on prior year (% p.a.)”. FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 29 of 44 Question 6 (i) (cont.) FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 30 of 44 Question 6 (i) (cont.) FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 31 of 44 Question 6 (ii) How much can Julius Caesar afford to pay for Marcus Aurelius if Julius Caesar were to make a takeover bid for Marcus Aurelius? FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 32 of 44 Question 6 (iii) Should Julius Caesar make a takeover bid for Marcus Aurelius assuming the target shareholders are likely to sell their shares for a 25% premium over the current share price? What takeover premium might provide the acquirer with a significant “margin of safety”? Total Marks FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 33 of 44 Question 7 (12 marks) White Star Line is a company that operates cruising passenger ships from London to New York. It also operates cargo and freight line ships and aircraft that operate globally to deliver goods to ports and through its logistics operations door-to-door. Recently, government quarantine restrictions on travellers in many countries has reduced the demand for passenger cruising, but cargo and freight, facing no such restrictions, are expected to grow significantly in profitability as a result. The company has fixed-interest debt securities traded in the New York debt markets and these have declined in value after the announcement of the quarantine restrictions by governments around the world. The share price of the company has also declined by about half from $40 per share to $20 per share since the announcement of the quarantine restrictions. The company is looking to expand its cargo and freight division given the expected uptick in demand, however given the current share price is reluctant to undertake a rights issue and is having difficulty raising new debt. Activist shareholders have also started pressuring the company to demerge (spin off) its passenger cruising ship division to focus on its cargo and freight logistics division. However, investment bankers (after speaking to the company’s debt holders) are advising the company that if it did spin off the passenger cruising division it would not be able to allocate any debt to the passenger cruising spin off leaving the cargo and freight division with relatively high debt levels that may slow its growth. Notably company management has been made aware of broker reports that have provided the following details about other listed passenger cruise ship lines. Company Current Share price Mid-point average Valuation Estimated by Analysts Blue Star Line $15 $40 Red Star Line $25 $60 Green Star Line $22 $55 The company, although aware of the issues in arriving at an accurate valuation, is of the belief that the mid-point average of analyst valuations for the company are reasonably accurate and that the current share price perhaps reflects a significant discount to that valuation due to uncertainty about when the operations of the companies in the industry will return to normality. FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 34 of 44 Question 7 (cont.) Based upon lecture 10, provide advice to the company on other alternatives to a demerger (spin off) of the cruising division and the benefits these might provide over a demerger at this time. Explain what might provide the best course for the company to take for its shareholders. FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 35 of 44 Question 7 (cont.) FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 36 of 44 Question 7 (cont.) FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 37 of 44 Question 7 (cont.) Total Marks FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 38 of 44 Question 8 (12 marks) Big K is a manufacturer of breakfast cereals which include corn, wheat, rice, oats and some nut varieties. Big K buys large quantities of corn, wheat, rice, oats and nut varieties from various farmers under spot contracts where the price is set at close to the time of harvest and delivery of the commodity. Prices for the commodities vary significantly based upon farmer plantings and weather conditions. Low commodity prices tend to discourage farmer plantings which might lead to (later in time) a lower volume of crop and improvements in price. Higher commodity prices might encourage farmer plantings leading to (later in time) a higher volume crop and a lower commodity price. Weather events can either improve or disrupt a harvest – so even if there are higher farmer plantings crop damage from weather events like storm, frost or fire might reduce the crop thus increasing commodity prices. Stable weather conditions might improve crop size even if farmer plantings are low. In such a case, commodity prices might not rise even though farmer plantings are low. Big K also knows from experience that consumers dislike constant changes in the price for boxes of cereal that Big K sells through retailers across the world. As a result, Big K tries to keep its prices for cereals it manufactures relatively constant. Price variations for Big K’s products are generally related to short-term promotional activities at the supermarkets where Big K’s products are sold. Given the difficulty in forecasting the commodity prices for corn, wheat, rice, oats and nuts used as inputs to Big K’s manufacture of breakfast cereals and the need for Big K to keep its prices relatively stable over time, Big K is considering using derivative contracts (forwards or options) to hedge its commodity price exposure. Big K has considered hedging its wheat exposure under the following possible outcomes: (i) The wheat price varies to be either $6 or $10 per bushel (ii) The wheat price varies to be either $7.90 or $8.10 per bushel In the case where the future wheat price may be either $6 or $10 per bushel the option price for an option with an exercise price of $8 per bushel is estimated to be $0.50 per option. In the case where the future wheat price may be either $7.90 or $8.10 per bushel the option price for an option with an exercise price of $8 per bushel is estimated to be $0.15 per option. FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 39 of 44 Question 8 (cont.) Big K wants to hedge its wheat price exposure over the next 3 months and can enter a 3 month forward contract for wheat at $8 per bushel today or enter into 3 month option contracts for a cost as detailed above. Compare the different outcomes if Big K were to hedge using futures contracts or options for both cases (i) and (ii) above. Discuss. Ignore transaction costs and margin requirements. Show all your calculations. (i) The wheat price in the future is either $6 or $10 per bushel. Show calculations. FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 40 of 44 Question 8 (cont.) (ii) The wheat price in the future is either $7.90 or $8.10 per bushel. Show calculations FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 41 of 44 Question 8 (cont.) Comparison and discussion of (i) and (ii) FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 42 of 44 Question 8 (cont.) Comparison and discussion of (i) and (ii) (cont.) Total Marks FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 43 of 44 FORMULAE SHEET = + + 1 = (− ) + 1 = �1 + (×)� = �1 + �× 365 �� 0 = (. $) + ($) 0 = $ [1 − (1 + )−] + $(1 + ) = 0(1 + ) 0 = 1 − = 0(1 + ) − = +1 − = (1 + ) − 0 = 1 0 = $1 − Depreciation p.a. = 0 = � (1 + ) − 0 =1 = 0 = � (1 + ) − 0 =1 = 0 ≡ � + � = � V = D + E = () = = �� + �� kd = I/D ke = NI/E kO = NOI/V = + ( − ) = + ( − ) = = �� + �� 0 = $ �1 − � 1(1 + )�� + $(1 + ) ∗ = � � (1 − ) + �� � (1 − )�1 − (1 − )�� = ′ = �� (1 − ) + �� = + �() + − � = + �() − � = × � (1−)�0 = ℎℎ + = + + 1 = 1 + 0 = ( + )1 − + 1 + = 10 + 1 − 00 0 = 1 + 11 + = dividend× 1 − FNCE30002 Corporate Finance Semester 1, 2020 Corporate Finance Final Examination Page 44 of 44 ∞ = 0 (1 + )(1 + ) − 1 0 = $ �1 − 1(1 + )� $ = 0× �1 − 1(1+)� = 0 = $ 0 = $ = ∞ = = " = �� + �� (1 − ) ∗∗ = � � + �� � �1 − (1 − )�� EV/EBITDA EV/EBIT P/E EV = enterprise value = market capitalisation + net debt Market capitalisation = number of shares × share price FCF = (EBIT)(1-t) + D&A – Δ(CA – CL) – CE – ΔLTD = (1 + ) − [ − , 0] −{[ − , 0]} Profit on a bought call = Payoff – Option Price Profit = Option Price + Payoff [ − , 0] −{[ − , 0]} Profit = Payoff – Option Price () = × ℎ + (1 − )× ℎ () = × + (1 − )× 1 + − 0 ßo = (D/V)ßd + (E/V)ße ßo= (D/D+E)(1-tc)ßd + (E/D+E)ße += E D oe 1ββ ( ) −+= coe tE D 11ββ E(ke) = rf + ße[E(rm) – rf] V = Earnings/ko
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