(A) There is always conflict of interest exists between stockholders and managers. Theoretically the stockholders are expected to workout control over managers through the annual meeting or through the board of directors.

2024-04-12T04:07:54+00:00
  
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Doctorate in Business Administration (DBA) Mixed Mode 

Module: Corporate Finance
Word Count: 4,000 to 4,500 words (maximum)

NOTE: Kindly share your UPDATED exam paper to the LIVE EXPERT with an updated Case Study (if any)

(The assignment requires knowledge, understanding and application of capital structure, Valuing projects and firms, Investing, Business risks, Exchange risks and financing)
Total Assignment Marks (100 %)

Task 1:
Yana Ltd is a whole sale business and it had started with a single store 50 years ago. As the business of the company expanded over a period of time, the company also entered the European markets. This was achieved by purchasing new premises and acquiring a few competitors in the industry. Thereafter, Yana Ltd obtained a listing on the New York Stock Exchange (NYSE) in the year 2020. Until then the company had established a well-known brand name and was a major player in the industry.

The management of Yana Ltd currently believes that they have exhausted all possibilities for further expansion in Europe. Hence they wish to diversify their business to the Asian continents as well, since the Asian markets have tremendous growth potential. Therefore, the company is planning to diversify its line of business including household items. In this regard the management has approached DNS Ltd, which operates in the Asian market. DNS Ltd is a popular and a well- known brand in the Asian markets.
One of the directors of Yana Ltd has approached you and you are an independent financial analysist, with a view to obtaining an independent valuation of DNS’s shares.

Summary of financial statistics for Yana and DNS are shown below:

 

Yana

DNS

Shares in issue (millions)

25

1.5

Earnings per share (cents)

$2.25

$3.06

Dividend per share (cents)

$1

$2

Share price

$24.74

NA

Net asset value attributable to equity ($m)

700

90

Debt ratio (outstanding debt as percentage of total market value of company)

20

0

Forecast growth rate percentage (constant, annualised)

4

5

Cost of equity

9%

NA

Note1: The forecast earnings for the next financial year are, estimated by the management of both the companies whichare as follows: Yana - $70 million DNS Ltd - $8 million
Note2: DNS does not calculate a cost of equity, but the industry average of the cost of equity for similar companies is10%. DNS Ltd follows a policy of maintaining a fixed dividend payout ratio.

Required:
(a) Advise the management of Yana Ltd on the methods of valuation that might be appropriate and a range of valuations for DNS Ltd within which Yana Ltd should be prepared to negotiate.
(b) Critically evaluate the factors that might influence whether or not the initial bid is likely to be accepted by the shareholders of a target company.

Task 2:
Yana Ltd has witnessed a continual increase of revenue in recent years. A key supplier required by Yana Ltd is located in Germany and its customers are located in and around Europe. Given below is a summary of its payables and collectibles over the next financial year.

 

Euros (€)

Due one month hence

 

1,500,000

Trade payables

Trade receivables

800,000

Due six months hence

 

Trade payables

1,700,000

Trade receivables

2,400,000


The borrowing and lending rates per annum in both €(Euro) and £(Sterling) are as follows:

 

Borrowing

Deposit

£ Sterling

5.00

4.50

€ Euro

4.00

3.50


The exchange rates as on today are as follows:

 

€ / £

Spot rate

1-month forward rate 6-month forward rate

1.6160 - 1.6220

0.0006 - £0.0008 premium 0.0009 - £0.0014 premium


Required:
(a) Calculate the values of net receipts and payments that Yana Ltd may need to hedge
(b) Find the net Sterling currency receipts or payments that the company might expect for both its one-month and six-month transactions if it:
(i) hedges its currency risk using the forward market hedge
(ii) hedges its currency risk using the money market hedge
(iii) does not hedge the risk and keeps the currency exposure open.
Note: Further you are told that the €/£ spot exchange rates in one- and six-months’ time are 1.6170 - 1.6210 and 1.6180 - 1.6200 respectively
(c) Critically evaluate and bring out the advantages and disadvantages of each of the three alternatives above, and recommend whichcourse of action would be the most appropriate for the company.

Task 3:
Yana Ltd wants to improve on its Capital and therefore one of the directors is looking forward to your expertise on the following specific points as you are an independent financial analysist.
Required:
(a) You are asked to advise on a company’s main sources and uses of cash.
(b) According to you what are the sources available for Yana Ltd to raise its capital?
(c) Do these different sources of capital available for Yana Ltd, are they going to charge the same rate of interest? Substantiate your answers with your reasons?
(d) Advise Yana Ltd on the best Capital Structure for enhanced performance. Be creative in presenting relevant literature.

Task4:
(A) There is always conflict of interest exists between stockholders and managers. Theoretically the stockholders are expected to workout control over managers through the annual meeting or through the board of directors.
Required:
(i) Critically  evaluate  if  these  mechanisms  work?  Substantiate  your  position  with examples.

(B) Stockholders have a number of ways to take money away from the bondholders.
Required:
You are to indicate as to how the following actions by stockholders transfer wealth from bondholders? And also, how would bondholders protect themselves against these actions?
(i) A rise in dividends
(ii) A leveraged buyout
(iii) Buying risky business.

(C) Maximizing stock prices does not make sense because investors focus on short term results, and not on the long-term consequences.
Required:
(i) Critically evaluate the above statement and provide your recommendations.

(D) Corporate strategists suggest that company’s focus on maximizing market share rather than market prices.
Required:
(i) Under what circumstances this strategy will work, if at all, and when might it fail?

End of Tasks

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