Dissues the four step process with regard to changes in equilibrium price and quantity.

A project sponsor has decided to build a small power plant to supply steam and electricity to a paper mill. The sponsor has asked your bank to lend money to the special purpose company which will own the power plant. Outline the various ways that the bank may be able to reduce its risk in respect of both repayment delay and default. Your answer should consider features of both the loan and the proiectlil Describe briefly the three main corporation tax systems. [3] (ii) State with reasons which systernls): {a} might be expected to encourage dividend payments [1] might be expected to encourage companies to diversify [1] (c) might be expected to be favoured by tax exempt investorsl 11 (1) State a formula relating the expected return with the required return for conventional government bonds. State another formula relating the expected return with the required return for property. [21 List the main simplifying assumptions made to derive the above formulac. [2] Discuss briefly why actual returns over a 12 month period may differ markedly from the expected returns for: (a) a portfolio of government bonds (b) a portfolio of property leased to the same government [41 [Total 8] 12 You are an analyst working for a merchant bank that is responsible for the first public share offering of a company. You have been asked to quote a price range for the share offer. (i) Describe the process you will follow to determine the price range. [4] List the information you will require to value the company. [3] Give two reasons why you might recommend a price range lower than the fair market value. [2]