ACCA考试模拟试题会计师与企业1docWord文档格式.docx
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ACCA考试模拟试题会计师与企业1docWord文档格式.docx
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partsandfridges.Ithasbeenmanufacturingpartsfordomesticrefrigerationandairconditioningsystemsforanumberofyears,whichitsellstoproducersoffridgesandairconditionersworldwide.Italsosellsaround50%ofthepartsitmanufacturestoitsfridgeproductiondivision.Itstartedproducingandsellingitsownbrandoffridgesafewyearsago.Afterlimitedinitialsuccess,competitioninthefridgemarketbecameverytoughandrevenueandprofitshavebeendeclining.Withoutfurtherinvestmenttherearecurrentlyfewgrowthprospectsineitherthepartsorthefridgedivisions.DoricCoborrowedheavilytofinancethedevelopmentandlaunchofitsfridges,andhasnowreacheditsmaximumoverdraftlimit.Themarketshavetakenapessimisticviewofthecompanyanditssharepricehasdeclinedto50cpersharefromahighof$2.85persharearoundthreeyearsago.
Extractsfromthemostrecentfinancialstatements:
AsurveyfromtherefrigerationandairconditioningpartsmarkethasindicatedthatthereispotentialforDoricCotomanufacturepartsformobilerefrigerationunitsusedincargoplanesandcontainers.Ifthisventuregoesaheadthenthepartsdivisionbefore-taxprofitsareexpectedtogrowby5%peryear.Theproposedventurewouldneedaninitialone-offinvestmentof$50million.
Suggestedproposals
TheBoardofDirectorshasarrangedforameetingtodiscusshowtoproceedandisconsideringeachofthefollowingproposals:
1.Toceasetradingandclosedownthecompanyentirely.
2.Toundertakecorporaterestructuringinordertoreducethelevelofdebtandobtaintheadditionalcapitalinvestmentrequiredtocontinuecurrentoperations.
5.Toclosethefridgedivisionandcontinuethepartsdivisionthroughaleveragedmanagementbuy-out,involvingsomeexecutivedirectorsandmanagersfromthepartsdivision.Thenewcompanywillthenpursueitsoriginalpartsbusinessaswellasthedevelopmentofthepartsformobilerefrigerationbusiness,describedabove.Allthecurrentandlong-termliabilitieswillbeinitiallyrepaidusingtheproceedsfromthesaleofthefridgedivision.Thefinanceraisedfromthemanagementbuy-outwillpayforanyremainingliabilities,theadditionalcapitalinvestmentrequiredtocontinueoperationsandre-purchasethesharesatapremiumof20%.
Thefollowinginformationhasbeenprovidedforeachproposal:
Ceasetrading
Corporaterestructuring
Theexistingordinaryshareswillbecancelledandordinaryshareholderswillbeissuedwith40millionnew$1ordinarysharesinexchangeforacashpaymentatpar.Theexistingunsecuredbondswillbecancelledandreplacedwith270millionof$1ordinaryshares.Thebondholderswillcontribute$90millionincash.Alltheshareswillbelistedandtraded.Thebankoverdraftwillbeconvertedintoasecuredten-yearloanwithafixedannualinterestrateof7%.Theotherunsecuredloanswillberepaid.Inadditiontothis,thedirectorsoftherestructuredcompanywillget4million$1shareoptionsforanexercisepriceof$1.10,whichwillexpireinfouryears.
Anadditionalone-offcapitalinvestmentof$80millioninmachineryandequipmentisnecessarytoincreasesalesrevenueforbothdivisionsby7%,withnochangetothecosts.Aftertheone-off7%growth,saleswillcontinueatthenewlevelfortheforeseeablefuture.
ItisexpectedthattheDoric'
scostofcapitalratewillreduceby550basispointsfollowingtherestructuringfromthecurrentrate.
Managementbuy-out
Thepartsdivisionishalfthesizeofthefridgedivisionintermsoftheassetsandliabilitiesattributabletoit.Ifthemanagementbuy-outproposalischosen,aprorataadditionalcapitalinvestmentwillbemadetomachineryandequipmentonaone-offbasistoincreasesalesrevenueofthepartsdivisionby7%.Salesrevenuewillthencontinueatthenewlevelfortheforeseeablefuture.
Allliabilitiescategorieshaveequalclaimforrepaymentagainstthecompany'
sassets.
ItisexpectedthatDoric'
scostofcapitalratewilldecreaseby100basispointsfollowingthemanagementbuy-outfromthecurrentrate.
Thefollowingadditionalinformationhasbeenprovided:
Redundancyandothercostswillbeapproximately$54millionifthewholecompanyisclosed,andprorataforindividualdivisionsthatareclosed.Thesecostshavepriorityforpaymentbeforeanyotherliabilitiesincaseofclosure.Thetaxationeffectsrelatingtothismaybeignored.
Corporationtaxonprofitsis20%andlossescannotbecarriedforwardfortaxpurposes.Assumethattaxispayableintheyearincurred.
Allthenon-currentassets,includinglandandbuildings,areeligiblefortaxallowabledepreciationof15%annuallyonthebookvalues.Theannualreinvestmentneededtokeepoperationsattheircurrentlevelsisroughlyequivalenttothetaxallowabledepreciation.The$50millioninvestmentinthemobilerefrigerationbusinessisnoteligibleforanytaxallowabledepreciation.
Doric'
scurrentcostofcapitalis12%.
Required:
PrepareareportfortheBoardofDirectors,evaluatingthefinancialandnon-financialimpactofallthethreeproposalstoDoricCo'
smainstakeholdergroups,thatincludes:
(i)AnestimateofthereturnthedebtholdersandshareholderswouldreceiveintheeventthatDoricCoceasestradingandiscloseddown.(5marks)
(ii)AnestimateoftheincomepositionandthevalueofDoricCointheeventthattherestructuringproposalisselected.Stateanyassumptionsmade.(8marks)
(iii)AnestimateoftheamountofadditionalfinanceneededandthevalueofDoricCoifthemanagementbuy-outproposalisselected.Stateanyassumptionsmade.(8marks)
(iv)Adiscussionoftheimpactofeachproposalontheexistingshareholders,theunsecuredbondholders,andtheexecutivedirectorsandmanagersinvolvedinthemanagementbuy-out.Suggestwhichproposalislikelytobeselected.(12marks)
Professionalmarkswillbeawardedinquestion1fortheappropriatenessandformatofthereport.(4marks)
(55marks)
2FubukiCo,anunlistedcompanybasedinMegaera,hasbeenmanufacturingelectricalpartsusedinmobilityvehiclesforpeoplewithdisabilitiesandtheelderly,formanyyears.ThesepartsareexportedtovariousmanufacturersworldwidebutatpresenttherearenolocalmanufacturersofmobilityvehiclesinMegaera.RetailersinMegaeranormallyimportmobilityvehiclesandsellthematanaveragepriceof$4,000each.FubukiCowantstomanufacturemobilityvehicleslocallyandbelievesthatitcansellvehiclesofequivalentqualitylocallyatadiscountof57.5%tothecurrentaverageretailprice.
AlthoughthisisacompletelynewventureforFubukiCo,itwillbeinadditiontothecompany'
scorebusiness.FubukiCo'
sdirectorsexpecttodeveloptheprojectforaperiodoffouryearsandthensellitfor$16milliontoaprivateequityfirm.Megaera'
sgovernmenthasbeenpositiveabouttheventureandhasofferedFubukiCoasubsidisedloanofupto80%oftheinvestmentfundsrequired,atarateof200basispointsbelowFubukiCo'
sborrowingrate.CurrentlyFubukiCocanborrowat500basispointsabovethefive-yeargovernmentdebtyieldrate.
Afeasibilitystudycommissionedbythedirectors,atacostof$250,000,hasproducedthefollowinginformation.
1.Initialcostofacquiringsuitablepremiseswillbe$11million,andplantandmachineryusedinthemanufacturewillcost$5million.Acquiringthepremisesandinstallingthemachineryisaquickprocessandmanufacturingcancommencealmostimmediately.
2.Itisexpectedthatinthefirstyear1,500unitswillbemanufacturedandsold.Unitsaleswillgrowby40%ineachofthenexttwoyearsbeforefallingtoanannualgrowthrateof5%forthefinalyear.Afterthefirstyearthesellingpriceperunitisexpectedtoincreaseby5%peryear.
5.Inthefirstyear,itisestimatedthatthetotaldirectmaterial,labourandvariableoverheadscostswillbe$1,200perunitproduced.Afterthefirstyear,thedirectcostsareexpectedtoincreasebyanannualinflationrateof8%.
4.Annualfixedoverheadcostswouldbe$2.5millionofwhich60%arecentrallyallocatedoverheads.Thefixedoverheadcostswillincreaseby5%peryearafterthefirstyear.
5.FubukiCowillneedtomakeworkingcapitalavailableof15%oftheanticipatedsalesrevenuefortheyear,atthebeginningofeachyear.Theworkingcapitalisexpectedtobereleasedattheendofthefourthyearwhentheprojectissold.
FubukiCo'
staxrateis25%peryearontaxableprofits.Taxispayableinthesameyearaswhentheprofitsareearned.Taxallowabledepreciationisavailableontheplantandmachineryonastraight-linebasis.Itisanticipatedthatthevalueattributabletotheplantandmachineryafterfouryearsis$400,000ofthepriceatwhichtheprojectissold.Notaxallowabledepreciationisavailableonthepremises.
FubukiCouses8%asitsdiscountratefornewprojectsbutfeelsthatthisratemaynotbeappropriateforthisnewtypeofinvestment.Itintendstoraisethefullamountoffundsthroughdebtfinanceandtakeadvantageofthegovernment'
sofferofasubsidisedloan.Issuecostsare4%ofthegrossfinancerequired.Itcanbeassumedthatthedebtcapacityavailabletothecompanyisequivalenttotheactualamountofdebtfinanceraisedfortheproject.
AlthoughnoothercompaniesproducemobilityvehiclesinMegaera,HaizumCo,alistedcompany,produceselectrical-poweredvehiclesusingsimilartechnologytothatrequiredforthemobilityvehicles.HaizumCo'
scostofequityisestimatedtobe14%anditpaystaxat28%.HaizumCohas15millionsharesinissuetradingat$2.55e
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