MOCK EXAM 2014 SOLUTIONS
Question 1
(i) = = 11.13 %
(ii) Kp = = = 9.28%
(iii) Kd = i(1-tc) = 0.10 (1-0.30) = 7%
(iv) Kd = = = 3.5%

WACC=

= +0.0928*+0.07*
= 8.7 %

Question 2
(i) g =( -1 =( = 4%
(ii) = = 12.03%
(iii) Kp = = = 10%
(iv) Kd = i(1-tc) = 0.04(1-0.30) = 2.8%
(v) Kd = = = 4.6 %
(vi) WACC= +0.10*+0. 028* =11.2%

QUESTION 3
(i) P/E Ratio = = = 8.25 * £2m =£16.5m Or
Earnings per share of Danoca Co = 40c
Average sector price/earnings ratio = 10
Implied value of ordinary share of Danoca Co = 40 x 10 = $4·00
Number of ordinary shares = 5 million
Value of Danoca Co = 4·00 x 5m = $20 million

(ii) g =( =( -1 = 0.044
(iii) =0.046+1.4(0.106-0.046) =13%
(iv) = = £2.91
Therefore Market Value of Danoca = 2.91*5m shares=£14.55m

QUESTION 4
(a)Earnings Per Share = 60/300 = 0.20
Price Earnings Ratio = 5/0.2= 25
(b) Total Assets = 1200m Minus: Total Liabilities -400m
Net Assets = 800m
Value per share = 800m/300m= £2.67 per share.

B(ii) = £1.87
Market Value =300m*1.87= £561m
QUESTION 5
A(i) Rights Issue per share=0.75*£5.50=£4.125
(ii) Cash Raised = 1m*4.125=4.125m
(iii) TERP = 31.625/6=5.27
(iv) Market Capitalisation = 6m*5.27=31.62m

(b) (i) Wealth before Rights Issue = 20,000*5.50= 110000
Rights Acquisition = 4 000*4.125 = -£16,500
New Value of Shares = 24,000*5.27 £126480 £109980 5 marks ii) Rights Acquisition = 4000*4.125 -£16,500 Rights Disposal = 4000*5.27 £21,080
Capital Gain 4,580
New Value of Shares = 20,000*5.27 105400 109980 5 marks iii) Rights Acquisition = 4000*4.125 -£16,500 Disposal 50 % = 2000*5.27 £10,540 -5960 Shareholding = 22,000* 5.27 115940 109980
QUESTION 6

Mock TERPS

A ex-rights price

existing shares

200,000
£4
= £ 800,000

1 in 4 New

50000
£3
= £ 150,000

250,000

£ 950,000

TERP =

95mood0,000/250,000

£ 3.80

Value of nil paid right

TERP- Issue

£ 0.80

accept 20 per share held

NET

B

Tot wealth
Holding

Current wealth 2000 X£4
2000

£8,000

2000 old shares i take up

value shares
2000
X terp 3.80 £ 7,600

value purchased shares
500
2000X1/4 terp 3.80 £ 1,900

£ 9,500

less cost of new shares
2000x1/4 x £3
-£1,500

£ 8,000

2500 new shares ii sells all the rights

value shares
2000
X terp 3.80 £ 7,600

cash from sale rights

2000X1/4x rights value £ 400

£ 8,000

2000 new shares

iii sells half
0.50

value old shares
2000
X terp 3.80 £ 7,600

value new shares (half)
250
X terp 3.80 £ 950

Cash -sale rights(50%)

250 rights val 80p £ 200

£ 8,750

less cost of new shares
250x issue £3
-£750

£ 8,000

2250 shares iv Nothing

After

value shares
2000
X terp 3.80 £ 7,600

£ 7,600

2000 new shares

However in IV the company wll sell the rights shares on