Reference no: EM132253473
Can of fresh air for sale!
This might totally sound unbelievable, but a successful businessman called Chen Guangbiao has made millions in a few days by selling pollution-free air in cans to people from cities of China with high air pollution which are unhappy with the quality of air in China. The company fills up these cans from Chinese cities with better air quality and even add "flavours" to them! The company operates in three cities (these are different divisions) with the worst air quality that are Linfen, Yangquan and Datong.
The table below shows the financial figures related to these three divisions.
|
|
Linfen
|
Yangquan
|
Datong
|
|
Market cap
|
2,160
|
18,520
|
632
|
|
Equity of shareholers
|
1,580
|
10,512
|
824
|
|
Debt (estimated net)
|
812
|
-12
|
1,356
|
|
Sales
|
22,210
|
23,724
|
701
|
|
EBIT
|
405
|
1,625
|
82
|
|
Net income
|
226
|
1,057
|
-24
|
|
βe observbed
|
0.8
|
0.5
|
1.2
|
|
βd estimated
|
0.1
|
0
|
0.3
|
|
Tax rate
|
35%
|
35%
|
35%
|
a) In this discussion, you are required to provide your comments on profitability, liquidity, and risk for this group in regards to the financial figures given. Support your discussions with simple financial analysis.
b) Let's assume that the risk-free investment before tax is about 6.5% and also the average return (before tax) that is required for the market portfolio is 11%. Based on this information estimate the overall cost of capital for this group.
1. By considering the following information and dollar against euro, estimate the future buy as well as sell price at 3 months.
a) Euro rate for the 3-month rate is 4 6/8_4 7/8 per cent;
b) The trade price for Euro (current price) is $1.0.210/20;
c) Dollar rate for the 3-month rate is 3 7/8_4%.
2. By considering the following information, estimate the 6-month interest rate of the dollar.
a) Euro rate for 6-month is 4 4/8_ 4 5/8%;
b) The trade price for Euro (current) is $1.0210/20;
c) The trade price for Euro at 6-month is $1.0150/60.
3. Jack Ma, who is a thriving market trader, is offering you a loan agreement worth $500 million in 3-month. By using the information provided in part i and part ii, do you think that there is any arbitrage opportunity? If there is, what is the potential gain? Explain. Note that the agreement is based on the terms of 3 3/4 _3 7/8 per cent
You may not believe this, but a search on the internet can reveal a list of options to purchase edible shoes made of chocolate. Hang Tua Inc. and Zhang Fatt Inc. produce edible shoes made of chocolate. They are owned by Mr Hang Tuah and Dr Zhang Fatt respectively. The figures for these companies are as follows.
|
|
Net Profit
|
Equity value
|
Book equity
|
|
Hang Tuah
|
60
|
750
|
800
|
|
Zhang Fatt
|
30
|
1500
|
400
|
In the case that Hang Tuah acquires Zhang Fatt, calculate the shareholdings of Mr Hang Tuah and Dr Zhang Fatt by using book equity and Net Profit, as well as equity value. Show all your calculations.