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The Association of Business Executives Advanced Diploma
1.34CF
CF0608

Corporate Finance afternoon 5 June 2008

1 Time allowed: 3 hours. 2 Answer any FOUR questions. 3 All questions carry 25 marks. Marks for subdivisions of questions are shown in brackets. 4 Present value and annuity tables are included in this question paper on pages 9 and 10. 5 No books, dictionaries, notes or any other written materials are allowed in this examination. 6 Calculators, including scientific calculators, are allowed providing they are not programmable and cannot store or recall information. Electronic dictionaries and personal organisers are NOT allowed. All workings should be shown. 7 Candidates who break ABE regulations, or commit any misconduct, will be disqualified from the examinations. 8 Question papers must not be removed from the Examination Hall.

CF0608

© ABE 2008

D/500/3720

Answer any FOUR questions Q1 Ullswater PLC, a successful hotel group, has made a bid for Black Combe PLC, a large but declining competitor. The following information is available for both companies which are quoted on the London Stock Exchange. Black Combe PLC Share price Number of shares £0.90 5m Ullswater PLC £0.80 8m

Both a cash bid and a share bid have been made. Ullswater PLC has offered Black Combe PLC two shares in Ullswater PLC for every share in Black Combe PLC. Alternatively, a cash offer of £1.00 per share has been made. Ullswater PLC expects the takeover to generate savings of £2m in present value terms. Required: (a) Advise the shareholders in Black Combe PLC which offer to accept. Include both financial and other factors in your answer. (15 marks) How might Ullswater PLC expect to achieve the savings of £2m? What uncertainties might Ullswater PLC face in trying to achieve this savings figure? (10 marks) (Total 25 marks)

(b)

Q2

(a) (b)

Explain the term convertible loan stock

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