M
mtm
Member
Hi
I have done mock exam 2007 and am hoping that the forum members could shed some light on some of my problems. I would really appreciate a reply within the next few days. :0)
(i)In the solutions at the bottom of pg 14, the "value of the company" is taken as 12x£30=£360m. I presume that this is a misprint or it is implicitly implied that this is the value of the shareholders part of the company. V=D+E and hence the value of the share cap here is just the “E” part.
(iii) In the solution here £360 (MV of equity) is added to £180 (nominal value of debt) plus cash of £20m to get £560. Surely add like with like, why does the solution add market value of equity with nominal value of debt? Is the solution assuming that nominal value of debt = market value of debt?
The solution then goes on to assume that the gearing required of 25% refers to D/V, yet in the solution of (i) gearing refers to just D/E. Surely this is inconsistent?
If I assume that the analysis is correct so far then from the second last paragraph the Private Equity group owns £60m of the firm and the directors own £360m of the firm. The directors own 86% of the firm and they are happy because this is greater than the min of 75% that they required. Yet the last paragraph does something very different to obtain £126m. It is inconsistent with the paragraph above because in the paragraph above the directors hold 86% of the firm but in the paragraph below the PE group suddenly hold 25%, i.e. the directors hold exactly 75% of the firm. The restructuring here sounds rather complicated. I was wondering if it could not simply be:
The PE group injects £60m into the firm. This pays off debt of £40m and leaves cash of £20m. The PE group then gets £60m worth of shares issued to it.
Thanks!
I have done mock exam 2007 and am hoping that the forum members could shed some light on some of my problems. I would really appreciate a reply within the next few days. :0)
(i)In the solutions at the bottom of pg 14, the "value of the company" is taken as 12x£30=£360m. I presume that this is a misprint or it is implicitly implied that this is the value of the shareholders part of the company. V=D+E and hence the value of the share cap here is just the “E” part.
(iii) In the solution here £360 (MV of equity) is added to £180 (nominal value of debt) plus cash of £20m to get £560. Surely add like with like, why does the solution add market value of equity with nominal value of debt? Is the solution assuming that nominal value of debt = market value of debt?
The solution then goes on to assume that the gearing required of 25% refers to D/V, yet in the solution of (i) gearing refers to just D/E. Surely this is inconsistent?
If I assume that the analysis is correct so far then from the second last paragraph the Private Equity group owns £60m of the firm and the directors own £360m of the firm. The directors own 86% of the firm and they are happy because this is greater than the min of 75% that they required. Yet the last paragraph does something very different to obtain £126m. It is inconsistent with the paragraph above because in the paragraph above the directors hold 86% of the firm but in the paragraph below the PE group suddenly hold 25%, i.e. the directors hold exactly 75% of the firm. The restructuring here sounds rather complicated. I was wondering if it could not simply be:
The PE group injects £60m into the firm. This pays off debt of £40m and leaves cash of £20m. The PE group then gets £60m worth of shares issued to it.
Thanks!