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b)

Forecast project or firm free cash flows in any specified currency and determine the project’s net present value or firm value under differing exchange rate, fiscal and transaction cost assumptions:[2]

c)

Evaluate the significance of exchange controls for a given investment decision and strategies for dealing with restricted remittance.[3]

d)

Assess the impact of a project upon a firm’s exposure to translation, transaction and economic risk.[3]

e)

Assess and advise upon the costs and benefits of alternative sources of finance available within the international equity and bond markets.[3]

5.

Impact of capital investment on financial reporting

a)

[3]

Assess the impact of a significant capital investment project upon the reported financial position and performance of the firm taking into account: i) Alternative financing strategies ii) Foreign exchange translation iii) Taxation and double taxation iv) Capital allowances and the problem of tax

C

ACQUISITIONS AND MERGERS

1.

Acquisitions and mergers versus other growth strategies

a)

Discuss the arguments for and against the use of acquisitions and mergers as a method of corporate expansion.[2]

b)

Evaluate the corporate and competitive nature of a given acquisition proposal.[3] Advise upon the criteria for choosing an appropriate target for acquisition.[3]

c)

d)

Compare the various explanations for the high failure rate of acquisitions in enhancing shareholder value.[3]

e)

Evaluate, from a given context, the potential for synergy separately classified as:[3] i) Revenue synergy

exhaustion.

    • ii)

      Cost synergy

    • iii)

      Financial synergy

  • 2.

    Valuation for acquisitions and mergers

  • a)

    Outline the argument and the problem of overvaluation.[1]

  • b)

    Estimate the potential near-term and continuing growth levels of a firm’s earnings using both internal and external measures.[3]

  • c)

    Assess the impact of an acquisition or merger upon the risk profile of the acquirer distinguishing:[3]

    • i)

      Type 1 acquisitions that do not disturb the acquirer’s exposure to financial or business risk

    • ii)

      Type 2 acquisitions that impact upon the acquirer’s exposure to financial risk

    • iii)

      Type 3 acquisitions that impact upon the acquirer’s exposure to both financial and business risk.

  • d)

    Advise on the valuation of a type 1 acquisition of both quoted and unquoted entities using:[3]

    • i)

      ‘Book value-plus’ models

    • ii)

      Market relative models

    • iii)

      Cash flow models, including EVATM, MVA

  • e)

    Advise on the valuation of type 2 acquisitions using the adjusted net present value model.[3]

  • f)

    Advise on the valuation of type 3 acquisitions using iterative revaluation procedures.[3]

g)

Demonstrate an understanding of the procedure for valuing high growth start-ups.[2]

  • 3.

    Regulatory framework and processes

    • a)

      Demonstrate an understanding of the principal factors influencing the development of the regulatory framework for mergers and acquisitions globally and, in particular, be able to compare and contrast the shareholder versus the stakeholder models of regulation.[2]

  • b)

    Identify the main regulatory issues which are likely to arise in the context of a given offer and

    • i)

      assess whether the offer is likely to be in the shareholders’ best interests

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