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巴黎银行-2014-C1_solution[1]

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Case ?1 ?-?‐ ?Solution ?/ ?expected ?answers ? ?
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Part ?1 ?
Question ?1 ?
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? ? Inventories ? Capital ?Expenditures ? ? Long ?Term ?Debt ? Cash ? Accounts ?Payable ? Free ?cash ?flows ? Goodwill ? Buildings ? Category ? Assets ? Not ?included ?in ?the ?balance ?sheet ? Liabilities ? Assets ? Liabilities ? Not ?included ?in ?the ?balance ?sheet ? Assets ? Assets ?

? The ?balance ?sheet ?is ?one ?of ?the ?four ?key ?financial ?statements ?along ?with ?the ?income ? statement, ?the ?statement ?of ?cash ?flows ?and ?the ?statement ?of ?shareholder’s ?equity. ?It ?reports ? the ?financial ?position ?of ?a ?company ?at ?a ?certain ?date ?and ?is ?composed ?of ?three ?parts: ? ? The ?assets: ?what ?the ?company ?has. ? ? The ?liabilities: ?what ?it ?owes ? The ?stockholders’ ?equity: ?the ?capital ?of ?the ?corporation. ? By ?construction: ?Assets ?= ?Liabilities ?+ ?Shareholders' ?Equity. ? ?

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Accounts ?such ?as ?Inventory, ?Cash, ?Goodwill ?and ?Buildings ?are ?on ?the ?asset ?side ?of ?the ? balance ?sheet, ?whereas ?Long ?term ?debt ?and ?Accounts ?Payable ?are ?on ?the ?liability ?side. ? Capital ?Expenditures ?and ?Free ?cash ?flows ?are ?not ?included ?in ?a ?Balance ?Sheet, ?since ?they ?do ? not ?affect ?the ?financial ?position ?of ?the ?company. ? ?

Question ?2 ?
? ? Right ?
Invest ?in ?new ?projects ? Pay ?taxes ? Increase ?cash ?reserves ?of ?the ?firm ? Sell ?new ?shares ? Pay ?dividends ? Reduce ?the ?debt ?

Wrong ? ? ? X ? ? ? X ? ? ?

X ? ? ? X ? ? ? X ? X ? X ?

Pay ?interest ?

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Free ?cash ?flow ?is ?the ?way ?of ?looking ?at ?a ?company's ?cash ?flow ?to ?see ?what ?is ?available ?for ? distribution ?among ?all ?the ?external ?fund ?providers ?(shareholders ?and ?debt ?holders) ?or ?to ? invest ?in ?new ?projects. ?To ?compute ?the ?free ?cash ?flow ?of ?a ?company, ?one ?has ?to ?use ?the ? following ?formula: ? FCF = !"#$% + !"#$"%&'(&)*+ ?!"# ?!"#$%&'(%&#)* ? !"#$%"& ?!"#$%&'()*$+ ? Net ?Incr. in ?Working ?Capital ? With ?NOPAT ?being ?the ?Net ?Operating ?Profit ?After ?Taxes, ?computed ?as ?EBIT ?less ?taxes. ? According ?to ?the ?definition, ?the ?free ?cash ?flow ?of ?a ?firm ?can ?be ?used ?to ?invest ?in ?a ?new ? project, ?to ?increase ?the ?cash ?holdings ?of ?the ?firm, ?to ?pay ?dividend ?(or ?buy ?back ?shares), ?and ? to ?pay ?the ?debt ?holders ?(payment ?of ?interests ?or ?loan ?repayment). ?The ?free ?cash ?flow ?cannot ? be ?used ?to ?pay ?taxes, ?as ?they ?are ?already ?deduced ?from ?the ?free ?cash ?flow. ?A ?firm ?selling ?new ? shares ?to ?the ?market ?will ?not ?use ?at ?all ?its ?free ?cash ?flow: ?on ?the ?contrary, ?it ?will ?receive ? proceeds ?of ?the ?sale. ? ? ?

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Question ?3 ?
? ? Weight ?in ?MK-?‐Tainment ?portfolio ? Interest ?rate ?(annual ?percentage ?rate) ? Compounding ?frequency ? Amount ?invested ?in ?each ?security ?(in ?mAces) ? Effective ?annual ?rate ?(in ?%) ? Interest ?earned ?after ?one ?year ?(in ?Aces) ? 1 ?year ? Security ?A ? Security ?B ? Security ?C ? 50% ? 3.66% ? 20% ? 3.60% ? 30% ? 3.70% ? 3 ?months ? 6.64 ? 3.70% ?

1 ?month ? 11.07 ? 3.71% ? 4.43 ? 3.66% ?

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 245 ?810 ? ? ? ? ? ? ? ? ? ? ? ? ? ?410 ?850 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?

? ? ? ? ? ?162 ?101 ? ? ? ?

Total ?interest ?earned ?on ?the ?portfolio ?(in ?Aces) ?818.760 ? ? ? ?
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? the ?goal ?of ?MK-?‐Tainment ?is ?to ?maximize ?the ? ? If ? interest ?earned ?after ?one ?year, ?which ?security ? B ? should ?be ?preferred ?by ?MK-?‐Tainment? ?

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? For ?security ?B ?for ?instance ?: ? ? ? ?

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Amount ?invested: ?50% ?x ?(27.145 ?– ?5) ?mAces ?= ?11.07 ?mAces ? Effective ?annual ?interest ?rate: ?(1 ?+ ?3.66% ?/ ?4)^4 ?-?‐1 ?= ?3.71 ?% ? Interest ?earned ?after ?one ?year: ?3.71 ?% ?x ?11.07 ?mAces ?= ?410 ?850 ?Aces ?

The ?total ?interest ?earned ?on ?the ?portfolio ?is ?simply ?the ?sum ?of ?the ?interest ?earned ?on ? securities ?A, ?B ?and ?C. ? To ?maximise ?the ?interest ?earned ?after ?one ?year, ?one ?has ?to ?invest ?in ?the ?security ?with ?the ? highest ?effective ?annual ?interest ?rate, ?which ?is ?security ?B ?(3.71%). ? ?

Question ?4 ?
Tax ?rate ?for ?corporation ?on ?interest ?earned: ?30% ? ?
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Tax ?rate ?for ?individuals ?on ?interest ?earned: ?0% ? ? Annual ?interest: ?800 ?000 ?aces ?
How ?much ?taxes ?are ?paid ?each ?year ?by ?MK-?‐Tainment ? because ?of ?the ?interest ?earned ?(in ?Aces)? ? How ?much ?can ?MK-?‐Tainment ?distribute ?to ?its ?shareholders ? each ?year ? ?(in ?Aces)? ? How ?much ?would ?the ?shareholders ?have ?earned ?if ?they ?had ? invested ?themselves ?the ?same ?amount ?in ?the ?securities ?at ? the ?same ?interest ?rate ?than ?MK-?‐Tainment ?(in ?Aces)? ? ?

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?30% ?x ?800,000 ?= ? ? ? ?240,000 ? ? ? ?

800,000 ?– ?240,000 ?= ?560,000 ? ? ? ?

? ?800,000 ?– ?0% ?x ?800,000 ?= ?800,000 ? ? ? ?

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Question ?5 ?
Annual ?taxes: ?240 ?000 ?aces ? Discount ?rate: ?3.5% ? Given ?a ?discount ?rate ?r, ?the ?NPV ?of ?a ?perpetuity ?(a ?stream ?of ?equal ?payments ?F ?that ?continue ? forever) ?can ?be ?computed ?as ?NPV ?= ?F ?/ ?r ?
NPV ?of ?future ?taxes ?on ?interest ?earned ?(in ?Aces) ?
240,000 ?/ ?3.5% ?= ? ? ?6,857,143 ? ? ?

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Part ?2 ?
Question ?1 ?
The ?balance ?sheet ?is ?in ?market ?values, ?so ?it ?can ?be ?used ?to ?compute ?the ?stock ?price ?(market ? value): ? ? ? ? ? The ?current ?stock ?price ?is ?computed ?as: ?(Total ?Assets ?– ?Total ?liabilities) ?/ ?Number ?of ? shares ? The ?dividend ?by ?share ?is: ?Total ?amount ?to ?be ?distributed ?/ ?Number ?of ?shares ? The ?stock ?price ?after ?the ?dividend ?is ?paid ?is: ?(Total ?Assets ?– ?Total ?amount ?distributed ? to ?shareholders ?– ?Total ?liabilities) ?/ ?Number ?of ?shares. ?It ?can ?also ?be ?computed ?as: ? Current ?stock ?price ?– ?Dividend ?by ?share: ?77.875 ?– ?22.00 ?= ?55.875 ?Aces. ?
(132,901 ?– ?55,026) ?x ?1,000 ?/ ? 1,000,000= ?77.875 ? 22,000,000 ?/ ?1,000,000 ?= ?22.00 ?

What ?is ?the ?current ?stock ?price ?of ?before ?the ?dividend ? payment ?(in ?Aces) ?? ? How ?much ?is ?the ?dividend ?by ?share ?(in ?Aces) ?? ?

What ?will ?MK-?‐Tainment ?share ?price ?be ?after ?the ?dividend ?is ? (132,901 ?– ?22,000 ?– ?55,026) ?x ?1,000 ?/ ?

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1,000,000 ?= ?55.875 ?

After ?a ?dividend ?payment, ?when ?markets ?are ?perfect ?(which ?is ?here ?assumed), ?the ?payment ? of ?the ?dividend ?leads ?to ?a ?drop ?of ?the ?market ?price ?of ?the ?share ?by ?the ?exact ?amount ?of ?the ? dividend. ? ?

Question ?2 ? ?
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How ?many ?shares ?can ?be ?bought ?by ?MK-?‐Tainment? ?
22,000,000 ?/ ?77.875 ?= ?282,504 ?shares ? ?

(132,901 ?– ?22,000 ?– ?55,026) ?x ?1,000 ?/ ? What ?will ?be ?the ?share ?price ?after ?the ?repurchase ?(in ?Aces)? ? (1,000,000 ?– ?282,504) ?= ?77.875 ?

? A ?share ?repurchase ?does ?not ?modify ?the ?share ?price. ? ?

Question ?3 ? ?
The ?debt ?equity ?ratio ?can ?be ?computed ?as: ?Total ?liabilities ?/ ?Market ?capitalisation ?of ?shares. ? In ?the ?case ?of ?a ?dividend ?payment, ?the ?market ?capitalisation ?of ?shares ?is: ?Price ?of ?one ?stock ? after ?dividend ?payment ?x ?number ?of ?shares. ?With ?a ?share ?repurchase, ?the ?computation ?is ?the ? following ?: ?Price ?of ?one ?stock ?after ?the ?repurchase ?x ?Number ?of ?shares ?after ?the ?repurchase. ?
If ?MK-?‐Tainment ?pays ?a ?dividend, ?what ?will ?be ?its ?debt-?‐ equity ?ratio ?after ?the ?dividend? ? If ?MK-?‐Tainment ?repurchases ?its ?own ?shares, ?what ?will ?be ?its ? debt-?‐equity ?ratio ?after ?the ?repurchase? ? 55,026,000 ?/ ?(55.875 ?x ?1,000,000) ?= ? 0.98 ? 55,026,000 ?/ ?(77.875 ?x ?(1,000,000 ?– ? 282,504)) ?= ?0.98 ?

? One ?can ?note ?that ?the ?debt-?‐equity ?ratio ?of ?a ?company ?is ?not ?influenced ?by ?the ?choice ?of ? paying ?a ?dividend ?or ?repurchasing ?existing ?shares. ?
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Question ?4 ? ?
Enterprise ?value ?of ?MK-?‐Tainment ?after ?the ?cash ?in ?excess ?has ?been ?distributed ?to ? shareholders: ?132 ?901 ?000 ?– ?22 ?000 ?000 ?= ?110 ?901 ?000 ?Aces. ?
Situation ?1. ?Before ?any ?news ?about ?the ?deal ?is ?released, ?MK-?‐Tainment ?decides ?to ?distribute ?as ?an ? extraordinary ?dividend ?its ?excess ?cash ?(22m ?Aces) ?to ?its ?shareholders. ? If ?the ?deal ?is ?finally ?concluded, ?what ?will ?be ?the ?share ?price ? after ?the ?deal's ?announcement? ? If ?the ?deal ?is ?finally ?cancelled, ?what ?will ?be ?the ?share ?price ? after ?the ?deal's ?cancellation ?announcement? ? ((110,901 ?+ ?10,000) ?– ?55,026) ? ? / ?1,000 ?= ?65.88 ? ((110,901 ?– ?5,000) ?– ?55,026) ? ? / ?1,000 ?= ?50.88 ?

? ? Situation ?2. ?Before ?any ?news ?about ?the ?deal ?is ?released, ?MK-?‐Tainment ?decides ?to ?repurchase ?its ? own ?shares ?to ?give ?back ?its ?excess ?cash ?(22m ?Aces) ?to ?its ?shareholders. ? If ?the ?deal ?is ?finally ?concluded, ?what ?will ?be ?the ?share ?price ? after ?the ?deal's ?announcement? ? If ?the ?deal ?is ?finally ?cancelled, ?what ?will ?be ?the ?share ?price ? after ?the ?deal's ?cancellation ?announcement? ? ((110,901 ?+ ?10,000) ?– ?55,026) ? ? / ?(1,000 ?– ?282.504) ?= ?91.81 ? ((110,901 ?– ?5,000) ?– ?55,026) ? ? / ?(1,000 ?– ?282.504) ?= ?70.91 ?

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Question ?5 ? ?
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Enterprise ?value ?of ?MK-?‐Tainment ?if ?the ?deal ?is ?signed: ?132 ?901 ?000 ?+ ?10 ?000 ?000 ?= ? 142 ?901 ?000 ?Aces. ? Enterprise ?value ?of ?MK-?‐Tainment ?if ?the ?deal ?is ?cancelled: ?132 ?901 ?000 ?– ?5 ?000 ?000 ?= ? 127 ?901 ?000 ?Aces. ? ?
Situation ?1. ?After ?the ?deal ?is ?signed ?and ?announced: ? MK-?‐Tainment ?decides ?to ?distribute ?its ?excess ?cash ?as ?a ? dividend. ?What ?is ?the ?share ?price ?after ?the ?dividend ? payment? ? MK-?‐Tainment ?decides ?to ?distribute ?its ?excess ?cash ?with ?a ? share ?repurchase. ?What ?is ?the ?share ?price ?after ?the ?share ? repurchase? ?

((142,901 ?– ?55,026) ?/ ?1,000) ?– ?22 ?= ? 65.88 ?

(142,901 ?– ?55,026 ?– ?22,000) ?/ ?(1 ?000 ?– ? (22,000 ?/ ?87.875)) ?= ?87.88 ?

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Situation ?2. ?The ?deal ?has ?been ?cancelled. ?After ?the ?cancellation ?of ?the ?deal ?is ?announced: ? MK-?‐Tainment ?decides ?to ?distribute ?its ?excess ?cash ?as ?a ? dividend. ?What ?is ?the ?share ?price ?after ?the ?dividend ? payment? ? MK-?‐Tainment ?decides ?to ?distribute ?its ?excess ?cash ?with ?a ? share ?repurchase. ?What ?is ?the ?share ?price ?after ?the ?share ? repurchase? ?

((127,901 ?– ?55,026) ?/ ?1,000) ?– ?22 ?= ? 50.88 ?

(127,901 ?– ?55,026 ?– ?22,000) ?/ ?(1,000 ?– ? (22,000 ?/ ?72.875)) ?= ?72.88 ?

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Question ?6 ? ?
If ?the ?company ?decides ?to ?pay ?a ?dividend, ?the ?dividend ?can ?be ?paid ?either ?before ?or ?after ?the ? news ?come ?out, ?it ?does ?not ?change ?the ?share ?price: ?65.88 ?Aces ?if ?the ?deal ?is ?signed, ?50.88 ?if ? the ?deal ?is ?cancelled. ? ? But ?if ?the ?company ?decides ?to ?repurchase ?shares, ?the ?final ?share ?price ?will ?not ?be ? ? ?the ?same ? if ?the ?repurchase ?occurs ?before ?or ?after ?the ?news ?comes ?out: ? ? If ?the ?deal ?is ?signed ?for ?instance, ?the ?final ?share ?price ?will ?be ?91.81 ?Aces ?if ?the ? repurchase ?is ?done ?before ?the ?announcement ?and ?only ?87.88 ?Aces ?if ?the ?repurchase ? is ?done ?after ?the ?announcement. ? ? If ?the ?deal ?is ?cancelled, ?the ?final ?share ?price ?will ?be ?70.91 ?Aces ?if ?the ?repurchase ?is ? done ?before ?the ?announcement ?and ?72.88 ?Aces ?if ?the ?repurchase ?is ?done ?after ?the ? announcement. ? ?

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The ?optimal ?payout ?policy ?if ?John ?expects ?the ?deal ?to ?be ?done ?is ?therefore ?to ?repurchase ?the ? shares ?as ?soon ?as ?possible, ?before ?the ?news ?comes ?out. ?Under ?this ?strategy, ?the ?final ?share ? price ?will ?be ?the ?highest. ? On ?the ?contrary, ?if ?John ?expects ?the ?deal ?to ?fail, ?he ?has ?to ?wait ?for ?the ?news ?to ?come ?out ? before ?repurchasing ?the ?shares. ?Under ?this ?strategy, ?the ?final ?share ?price ?will ?be ?the ?highest. ?
Dividend ? payment ? before ?the ? news ?comes ? out ? Stock ? Dividend ? repurchase ? payment ?after ? before ?the ? the ?news ? news ?comes ? comes ?out ? out ? Stock ? repurchase ? after ?the ?news ? comes ?out ?

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John ?expects ?good ?news ?to ?come ? out ?about ?the ?deal ? FALSE ? John ?expects ?bad ?news ?to ?come ? out ?about ?the ?deal ? FALSE ?

FALSE ?

TRUE ?

FALSE ?

FALSE ?

FALSE ?

TRUE ?

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