QUESTION 1.

Meg plc is a large retailer of electrical products. Examine the data about Meg plc, at the end of this paper and produce a report on the risks and rewards of the business.

At the beginning of 2023, the company will have to repay a loan of 500 million and is prepared to seek a further loan, or issue new shares, if necessary.

Your report should have a suitable title and may contain the following sections:

1 Discussion

1.1 Budgetary control report

1.2 Ratio analysis

1.3 Cash budget for 2021

1.4 Refinancing

2 Summary of Recommendations

3 References

APPENDIX

To prepare the cash budget for 2021 you should assume that the market will be 5% bigger than it was in 2020.

QUESTION 2.

Assume that a private equity company is prepared to take a 15% holding in the business (in question 1) for 500 million, at the beginning of 2023.

Required:

Using discounted cashflow techniques, calculate how long would take the private equity company to recover its investment?

Assume that:

• Their cost of capital is 10% per year

After 2023, cash receipts increase at 5% a year and cash payments increase at 4% a year