QUESTION ONE

(a) With reference to the Sale of Goods Act, or the equivalent law on the sale of goods in your country:

(i) Explain the meaning of the rule "nemo dat quod non habet'. (4 marks)

(ii) Discuss four exceptions to the rule in (a)(i) above. (8 marks) (b) Allan Bora, the proprietor of Pesa House, placed a warning sign outside the entrance to the building that the floors of the premises were slippery. Brian Mbiyo, who was in a hurry to attend classes in the building, did not see the notice. As Brian Mbiyo was rushing to class, he slipped, fell and fractured his hand. Brian Mbiyo is now seeking compensation from Allan Bora.

Advise Allan Bora on his legal position. (8 marks)

QUESTION TWO

1. Our company (A) is going to buy another company (B). We want to value the shares of B and, therefore, we will use three alternatives of the structure Debt/shareholders' equity so as to obtain the WACC :1) present structure of A;2)Present structure of B, and 3)structure used by A to finance the acquisition B' shares . We will value the company B by applying these three alternative and then take as a reference the average of the results. is it correct?

2. When valuing the shares of the company, I calculate the present value of the expected cash flow to shareholders and I add to the results obtained cash holding and liquid investments. Is that correct?

3. I think the free cash flow can be obtained from the equity cash flow (CFac)by using the relation :FCF=CFac+interest-D. is it true?

4. Is the relationship between capitalization and book value of shares a good guide to investments?

5. Does it make any sense to form portfolio comprised of companies with higher return per dividend?

6. A financial consultant is valuing accompany I set as an objective (entertainment centre) by discounting the cash flow until untilthe end of the dealership at 7.26% (interest rateyear on 30 year bonds = 5.1%; market premium = 5% and beta =0.47%). 0.47% I s a better provided by Bloomberg for kinepolis ( the company whose activity is the management of several cinemas in the EU ,)in the function ofDax index. Is it correct to use the beta kinepolis in this valuation?

7. Iam confused because I see different formulae to lever and unleverbetsa imn different books(Damodaran MCkisney , Brealy 4 myers )which is the correct one?

8. An investment bank affirms that the VTS ( value of tax shields) of my company is equal to each year's VTS using the WACC as a discount rate . I told them I have never seen such calculation of the VTSbut they answered that it was habitual practice. Is that true?

9. I have two valuations of thre company we set as an objective . in one pf them the present value of the tax shields (D andKd T )was calculated using Ku ( required return to unlevered equity)and, in the other side , using Kd ( required to return debt) . the second valuation is a lot higher than the first one , but which of the two is better?

10. My investment bank told me that the beta provided by Bloomberge incorporates the illiquidity ris and the small cap premium because Bloomberge does the so-called Bloomberge adjustment formula. Is thst true?