Solved: UMACTF-15-M Corporate Financial Strategy Exam 2019/20

This document presents a solution to a Corporate Financial Strategy assignment, likely an exam paper based on the module code UMACTF-15-M. The solution covers topics including share valuation using dividend discount models, the law of one price, merger analysis involving cash offers and share alternatives, true/false questions on financial concepts, futures contract analysis, and present value calculations. The assignment is divided into three sections (A, B, and C), with section A containing multiple questions on finance concepts and calculations. The solution includes detailed calculations and explanations for each question, along with a list of references.

Module title: Corporate
Financial Strategy

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

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
Thus, with this it can be stated that the price of share of company A is £114.3
B
The law of one price is being defined as the economic theory which states that price of all
identical asset and commodities will be having the same prices irrespective of their location or
any other factors. This law undertakes the only one price in to account of all the market there is
not any other cost being implemented. This law of one price is being attained by way of
eliminating the price difference with help of arbitrage opportunity which is being present within
the markers. This law of one price is the key foundation for the purchase power parity. This
purchase power parity states that value of two currencies is equivalent in case basked of all
identical tools is prices in both the countries is same.
Question 2
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
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
The cost in the spot market plus the loss in the futures markets gives a total cost of $12,500,000.
Question 6
A
Cost of car = 150000
Interest rate = 9 %
Sum need to be set aside = FV = PV * [1+ (I / n)] (n* t)
= 104792.12
Thus, it can be stated that for providing the sum in four years the person will have to eep the total
of 104792.12 aside today.
B
Amount to be paid yearly = 12000
Interest rate = 7 %
Money need to set aside is
FV = PV * [1+ (I / n)] (n* t)
FV = 12000 * [1 + (0.07/ 4)]
FV= 53279.32
This simply means that for covering the fees, the person need to keep aside 53279 today so that
they can cover the cost or future.
SECTION B
SECTION C

REFERENCES
Books and Journals
Online
[Online]. Available through: <>
[Online]. Available through: <>
[Online]. Available through: <>