Corporate Financial Strategy: Analysis and Concepts

Module title: Corporate
Financial Strategy

TABLE OF CONTENTS
SECTION A.....................................................................................................................................3
Question 1...................................................................................................................................3
Question 2...................................................................................................................................3
Question 3...................................................................................................................................3
Question 4...................................................................................................................................4
Question 5...................................................................................................................................4
Question 6...................................................................................................................................4
SECTION B.....................................................................................................................................5
Question: 8..................................................................................................................................5
SECTION C....................................................................................................................................9
Question 10.................................................................................................................................9
REFERENCES..............................................................................................................................11

SECTION A
Question 1
A
V= D/ K
Where
V= value
D = dividend in next year
K = required rate of return
V= 8/ 7 %
V= 114.3
B
The law of one price states that all the identical assets and commodities will be having same
prices. This is particularly because of the reason that irrespective of the location or any other
factor is the asset is identical then it will be same priced.
Question 2
The case of company B is complicated because it is not a zero coupon bond. The zero coupon
bond is very easy to be calculated as these are more volatile in comparison to the regular bonds.
Question 3
A
Gain from merger
Cost Amount
Total cash 30000000
Value of company 25000000
5000000
Add-
Marketing cost 400000
Administrative cost 300000
Distribution cost 100000
Total gain 5800000

B
Cost of cash offer= 30000000+2700000= 32700000
C
Cost of share alternative
50 % holding in major
Value of Major = 40000000
50 % of 40000000= 20000000
D
Economies of scale is the one major reason for continuing with the option of merger.
Another reason is that it will add the asset of both the companies and this will provide a better
and effective working and resources.
Question 4
A. False
B. True
C. True
D. True
E. True
F. False
G. True
Question 5
Total 10000 ounces
Price= 1250
Spot price= 1100
Purchase cost= 10000 * 1250 = 12500000
Dragon motors can now buy the contract currently at 1100 that is
10000 * 1100 = 11000000
Profit or loss incurred =
10,000 × ($1,250 − $1,100) = $1,500,000
Question 6
A