链剥经将复多大号 公司理财 company. He wishes to raise the necessary funds through borrowing and suggests that the company should issue debenture stock immediately at an interest rate of 7%.He has already had preliminary discussions with the company's financial advisors who believe that it may be possible to raise sufficient funds in this way in order to finance the expansion plan.However, the debenture deed is likely to impose certain restrictive covenants on the company and these include a requirement to maintain an interest cover ratio of 3-5 times.The debenture issue will also require adequate security and would have to be repaid on 31 May 2010. The weighted average cost of capital of the company is 10%. Required: (a)Based on the information provided,produce an estimate of how much the company will have to raise in order to finance the expansion plan,assuming there was an immediate issue of debenture stock.(15 marks) (b)Identify and discuss any issues that may arise as a result of funding the expansion plan by an issue of debenture stock.(7 marks) (c)Suggest an approach to borrowing in order to finance the expansion plan that may be used instead of the one suggested by John Kerria and discuss the advantages and disadvantages of this approach.(5 marks) (d)Evaluate the financial implications of the expansion strategy using the net present value method.(15 marks) (e)Explain how the validity of the assumptions and forecasts provided in the case study may be tested.Where the information allows,provide suitable workings to support any points that you wish to make concerning the assumptions and forecasts made.(8 marks) (50 marks) Notes: 1.In answering the case study all key workings and assumptions that you make must be clearly stated. 2.Workings should be in f millions and should be made to one decimal place. 3.Ignore taxation. SUGGESTED ANSWERS FOR PROJECTS Kerria Carpets plc (a)Funding requirements If there is an immediate issue of debenture stock,there should be sufficient funds to pay for the costs of expansion based on those estimates currently available.When calculating the funds required,it is prudent to assume the minimum level of sales mentioned in the case study. The following calculations show the funding gap. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 onward 第4页共8页公司理财 company. He wishes to raise the necessary funds through borrowing and suggests that the company should issue debenture stock immediately at an interest rate of 7%. He has already had preliminary discussions with the company’s financial advisors who believe that it may be possible to raise sufficient funds in this way in order to finance the expansion plan. However, the debenture deed is likely to impose certain restrictive covenants on the company and these include a requirement to maintain an interest cover ratio of 3·5 times. The debenture issue will also require adequate security and would have to be repaid on 31 May 2010. The weighted average cost of capital of the company is 10%. Required: (a) Based on the information provided, produce an estimate of how much the company will have to raise in order to finance the expansion plan, assuming there was an immediate issue of debenture stock. (15 marks) (b) Identify and discuss any issues that may arise as a result of funding the expansion plan by an issue of debenture stock. (7 marks) (c) Suggest an approach to borrowing in order to finance the expansion plan that may be used instead of the one suggested by John Kerria and discuss the advantages and disadvantages of this approach. (5 marks) (d) Evaluate the financial implications of the expansion strategy using the net present value method.(15 marks) (e) Explain how the validity of the assumptions and forecasts provided in the case study may be tested. Where the information allows, provide suitable workings to support any points that you wish to make concerning the assumptions and forecasts made. (8 marks) (50 marks) Notes: 1. In answering the case study all key workings and assumptions that you make must be clearly stated. 2. Workings should be in £ millions and should be made to one decimal place. 3. Ignore taxation. SUGGESTED ANSWERS FOR PROJECTS Kerria Carpets plc (a) Funding requirements If there is an immediate issue of debenture stock, there should be sufficient funds to pay for the costs of expansion based on those estimates currently available. When calculating the funds required, it is prudent to assume the minimum level of sales mentioned in the case study. The following calculations show the funding gap. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 onward 第 4 页 共 8 页