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fundamentals of corporate finance

Questions and Answers of Fundamentals Of Corporate Finance

=3/Show how the figure 44.6% (mentioned on page 871) is calculated.
=2/Provide a simple example to illustrate that downstream integration increases working capital.
=1/Provide a simple example to illustrate that upstream integration increases working capital.
=14/What could a group be tempted to do if it fears that at the close of its financial year it will be unable to meet its debt covenants, resulting in the restructuring or possibly even the
=13/Is managing working capital only the business of the financial manager? Why?
=12/Why is there a correlation between payment period and rate of customer default?
=11/A client has the choice of paying at 10 days with a 2% discount or at 60 days, and it chooses the latter option. What does this signal?
=10/Why would a company, knowing that its suppliers had taken out credit insurance for part of the trade payables it owes, be well advised to pay by the due date?
=9/What are the services provided by credit insurance?
=8/Is the securitisation of trade receivables or inventories a way of managing working capital?
=7/What are the three documents that prove the existence of a debt and which are indispensable for sending out an effective reminder?
=6/You are late in paying an invoice. You have not received a reminder. What do you conclude?
=5/A customer suddenly increases his orders from you. What is your reaction?
=4/In what conditions is excessive working capital not the sign of poor management?
=3/Why do LBO funds set so much store by the management of working capital?
=2/Why does managing working capital involve both supply management and strategy?
=1/For how long can factories be shut down while surplus stocks are absorbed?
=(d) Who are the key beneficiaries of this plan?
=(c) Calculate how much the various lenders will have before and after the rescue plan.Assume the negotiated amount of the face value of the senior debt will be 80% after the plan.
=(b) Calculate the value of the different securities used to finance the capital employed.
=(a) What is your view of the financial health of this company?
=2/Alok Malpani and Sons is a high-tech group in financial distress. Its key financials are as follows:(in €m) 2012 2013 2014 Sales 8026 5208 3018 Operating income 130 (168) (100)Financial expense
=(d) Are conflicts that arise between shareholders and creditors a result of the way in which the company finances investments?
=(c) What conditions would new creditors set for financing this new investment?
=(b) What is the objective value of the investment project? At what price would investors be prepared to invest? Does your answer depend on the way this investment is financed?
=(a) What is the initial value of the debt? And of shareholders’ equity?
=1/The Landmark car park will be shutting down tomorrow after having generated a final cash flow. It has debts of 500 used to finance its activities. Depending on whether the economic situation is
=12/Name countries which have debtor friendly bankruptcy procedures.
=11/What are the pros of a creditor friendly bankruptcy procedure for shareholders?
=10/Why do creditors agree to grant loans to companies during the bankruptcy period?
=8/Can a company with no debts go bankrupt? Can it destroy value?
=1/Why do companies go bankrupt?
=13/ Can someone remain an LBO manager for more than 10 years?
=12/ Can an LBO work without debt?
=11/ What are the three types of risks that the shareholder of an LBO fund runs?
=10/ What are the pros and cons of being a shareholder of a listed LBO fund compared to being a shareholder of a private one?
=7/ What are the different possible exit routes after an LBO?
=5/ Can an LBO be carried out on a start-up company?
=2/ What risks are involved in an LBO?
=1/ Explain why an LBO is a type of capital reduction.
=(e) What is the value created and what does it represent?
=(d) What is the value of Epsilon, the new name for the merged Gamma and Delta (still with synergies of 10) if it is valued on the basis of a P/E of 50?
=(c) What are the minimum and maximum relative values if the synergies that come out of the merger increase the profits of the new group by 10, and if the new group is valued on the basis of a P/E of
=(b) Redo the calculations with a P/E for Gamma of only 15, and then 6.
=(a) Gamma acquires Delta. The criterion selected for calculation purposes is equity value. Calculate the old and new EPS, equity per share and the percentage of the shareholdings of the former
=2/Below are the key figures for Gamma plc and Delta plc:Net profit Book equity P/E Number of shares Gamma 20 60 50 2000 Delta 40 300 8 1000
=1/Alpha AG is wholly owned by Mr Alpha and Beta AG is wholly owned by Mr Beta. The key figures for the two companies are as follows:Net profit Equity value Book equity Alpha 60 750 800 Beta 30 1500
=12/In what circumstances can a demerger lead to creation of shareholder value? And value for creditors?
=11/Why are the legal procedures related to mergers so onerous?
=10/Where does the creation of value lie in a merger?
=6/Why is the determination of the exchange ratio important?
=5/Is the dilution of EPS that follows all mergers generally greater or less than that which follows a standard share issue?
=t for the acquired company?
=t for the shareholder of the acquiring company?
=t for the acquiring company?
=t for the shareholder of the acquired company?
=1/What is the fundamental difference between a merger and a sale:
=15/On the basis of financial theory, how can the role of an investment bank in a deal be summarised?
=14/Why are defence mechanisms against hostile takeover bids very strictly regulated?
=13/What concern of market authorities is addressed by a suspension of trading after notice of an offer has been filed?
=12/What is the logical result of a successful hostile stake-building on the market?
=11/What is the purpose of representations and warranties? What are the limits of such clauses?
=10/How can a buyer be protected against any hidden liabilities and debts that the target may have?
=9/When is it a good idea to go for a private auction?
=6/What will be key to making an M&A deal a successful event in a company’s history?
=14/What are the pros and cons of separating the position of chairman of the board from that of CEO?
=11/Is corporate governance relevant at companies over which the state exercises full control?
=10/Does the regular rotation of a firm’s statutory auditors improve corporate governance?
=5/What is the danger when a board has specialised committees?
=Why did PPR decide to IPO CFAO through the sale of a large portion of its shares?
=What benefits could this transaction have for CFAO?
=What impact will the IPO have on CFAO’s balance sheet and on its income statement?
=What are your views on the company’s dividend policy before and after the IPO?
=1/A subsidiary of PPR, CFAO is a leading specialised distributor of automobile and pharmaceutical products in Africa. CFAO operates in 34 countries, including 31 African countries, and has over 10
=9/What will a company with a large number of shareholders that does not want to get a listing on the stock exchange have to do sooner or later?
=8/What are the risks of an IPO?
=7/What are the risks run by a company that carries out an IPO just because IPOs are fashionable?
=6/In response to a question about his expectations of Hermès’s new financial strategy at the time of its IPO, Jean-Louis Dumas, Hermès’s CEO, replied that he hoped that his grandchildren would
=5/Why is it difficult for a sole shareholder to sell 100% of his shares when the company undertakes an IPO?
=4/Why do companies that list their shares on the stock market have, more often than not, to change their corporate governance?
=3/Why would a company with an 85% stake in a subsidiary launch a takeover bid for the remaining shares?
=2/Why might shareholders prefer to sell their stakes in a company through an IPO rather than a straight sale to an investor?
=1/Give reasons why a company would want to list on the stock exchange.
=1/Provide a description of the shareholdings and management in the following situations:◦ Company 1: capital split between investors each holding the blocking minority;◦ Company 2: large group
=10/What is the difference between a holding company discount and a conglomerate discount?
=Can this situation last?
=8/Why do some conglomerates continue to survive, despite the loss of value they generate?
=4/What purpose does a “Dutch clause” serve?
=1/What techniques can be used for choosing shareholders?
=4/What is the drawback of the β coefficient?
=6/What does a low risk premium indicate?
=7/On the graph on page 332, does the Daimler share seem under- or overvalued to you?
=What about the Bayer share?
=10/What does a reduced liquidity premium indicate?
=11/The standard deviation of the earnings on State Bank of India shares is 40%, while for Siemens it is only 28%. However, State Bank of India has a β of 1.13 and Siemens of 1.7.Explain how this is
=12/Explain why an investor would be prepared to require a return lower than the risk-free rate for a share with a negative β.
=15/Mid-2013 we could see that large food processing groups (Danone, Nestlé, Unilever) were valued at 13.9 times their expected results. For smaller groups in the same sector (LDC, Bonduelle, Ebro)
=16/What is the difference between the zero-coupon curve and the yield curve?
=17/Why is a yield curve showing higher long-term interest rates than short-term rates (rising curve) called a normal curve?
=18/What risk are we talking about when we say that government bonds are risk-free?

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