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Individual Assignment
Page 1 of 4
Probability
Without Expansion
With Expansion
Low
0.3
$30,000,000
$33,000,000
Normal
0.5
$35,000,000
$46,000,000
High
0.2
$51,000,000
$64,000,000
a)
Recommend the expected value of the company within one year, with and without
expansion and justify whether the companys stockholders be better off with or
without the expansion.
(20 marks)
b)
Assess the expected value of the companys debt in one year, with and without the
expansion.
(5 marks)
A.P.U Level 3
201608
BM013-3-3-CFIN
c)
Individual Assignment
Page 2 of 4
Critically analyse the value creation is expected from the expansion within one years
time. Explain how much value creation is expected for stockholders and bondholders
respectively.
(20 marks)
d)
If the company announces that it is not expanding, comment what will happen to the
price of its bonds and vice versa.
(5 marks)
e)
If the company opts not to expand, elaborate the implications for the companys future
borrowing needs and the implications if the company decided to expand.
(5 marks)
f)
Due to the existence of the bond covenant, the expansion would have to be financed
with equity. Appraise how this would affect your answer if the expansion were
financed with cash on hand instead of new equity.
(5 marks)
(Total: 60 marks)
Question 2
In all countries, it appears that some firms have a target debt ratio while others do not have
one. Critically discuss and review the validity of the trade-off theory, pecking order theory,
and market timing theory.
(Total: 40 marks)
(Grand Total:100 marks)
Specification of Assignment:
1.
2.
The assignment should be well-structured and the use of proper paragraphs for topic
separation is encouraged. The assignment should not exceed 2500 words.
4.
A.P.U Level 3
201608
BM013-3-3-CFIN
Individual Assignment
Page 3 of 4
Distinction
75-100%
Credit
65-74%
Good Pass
55-64%
A.P.U Level 3
201608
BM013-3-3-CFIN
Pass
50-54%
Fail
0 to 49%
Individual Assignment
Page 4 of 4
Every question should be assessed critically and rationally by displaying a wide range of
corporate finance knowledge learned throughout the subject. References from books,
articles or academic journals are required and marks will be reducing if none of the
conditions apply. Any enquiries in relations to the assignment should be put up one
week before the submission.
Students are required to enroll their assignment in Turnitin by using the followings
information and attach together the screenshot of the result in the assignment.
Class ID: 13083705
Enrollment Password: 1606
A.P.U Level 3
201608