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Bman 30111 Exam Paper 2019/20 £13.02   Add to cart

Exam (elaborations)

Bman 30111 Exam Paper 2019/20

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This is a unique exam paper for 2019/20, here to give you insight on what the exams will be like. Essential!! To your success in Manchester!!

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  • August 1, 2024
  • 7
  • 2019/2020
  • Exam (elaborations)
  • Only questions
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BMAN30111



THREE Hours

Formula Sheet attached
Normal Distribution Tables attached




THE UNIVERSITY OF MANCHESTER



ADVANCED CORPORATE FINANCE




20 January 2020



14:00 – 17:00




Answer ANY TWO questions.


All questions carry equal marks




THIS QUESTION PAPER MUST NOT BE REMOVED FROM THE EXAMINATION
ROOM


___________________________________________________________________

Electronic calculators may be used in line with University regulations
___________________________________________________________________


© The University of Manchester, 2020
PTO



Page 1 of 7

, BMAN30111

Answer ANY TWO questions

QUESTION 1

(a) You are the financial manager of a very profitable firm, which is currently evaluating
a new, large investment project at the start of 2020. The project involves the acquisition
of a plant, which requires an initial outlay of £300 million. The project’s investment
horizon is six years. Over this period, the initial capital investment in the plant should
be fully depreciated. Despite this, it is expected that at the end of the project (after six
years) the taxable salvage value of the plant will amount to £50 million. The project
requires an initial (at the start of 2020) working capital investment of £30 million, which
should be recovered in full at the end of 2025. Your accountants have put together the
following projections on expected sales and cash flows, and information on the cost of
capital of the company:

Table 1. Sales and cash flow projections

2020 2021 2022 2023 2024 2025
Sales 120 135 140 125 120 110
EBITD 60 75 80 65 60 50
Depreciation (50) (50) (50) (50) (50) (50)
EBIT 10 25 30 15 10 0
Tax (2) (5) (6) (3) (2) 0
expense
EBIAT 8 20 24 12 8 0


Table 2. Cost of capital

Risk-free Rate (Rf) 1%
Project Cost of Debt (Rd) 4%
Market Risk Premium 6%
Marginal Corporate Tax Rate (Tc) 20%
Asset Beta of comparable companies 0.8


Required:

Carry out the following calculations, always assuming that cash flows occur at the end
of their respective years:

(i) Estimate the NPV of the investment project at the start of 2020 if it is 100%
financed with equity. Comment on your findings. (20 marks)




Question 1 continued overleaf

Page 2 of 7

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