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business
principles corporate finance
Corporate Finance Theory And Practice 2nd Edition Pierre Vernimmen, Pascal Quiry - Solutions
Under what conditions might a fast-growing company with opportunities to invest at a rate of return higher than its cost of capital have a capital decrease?
Does a manager who holds stock options in the company prefer buybacks or dividends?Why?
What is important in a capital increase where each shareholder takes his proportionate share of the issue?
What is dilution of control?
When are there three different measures of dilution of control? What are they?
What is the purpose of subscription rights? What is their theoretical value?
At what price is a capital increase effected when made with an issue of subscription rights? When made without?
How can a company be sold by means of a capital increase?
What is the consequence of a capital increase on EPS in the short term? In the long term?
Should there be an issue of new shares whenever the share price is overvalued?
Why are the most profitable companies the ones that gain the most by issuing new shares?
When an investment bank underwrites an issue of new shares, it charges the issuing company a commission. How is this commission analysed using options theory?
Does a capital increase with pre-emptive subscription rights signal overvaluation of the shares more strongly than one without?
What techniques can be used for choosing shareholders?
What sort of general meeting must be held to approve capital transactions?
What power does a shareholder with a blocking minority have?
What purpose does a “Dutch clause” serve?
Why can management compensation in the form of stock create value?
How would compensating employees in stock run contrary to financial theory?
Are there any voting rights attached to a tracking stock?
What advantages are there in buying 100% of the capital of a limited share partnership?
Why do so many conglomerates continue to survive, despite the loss of value they generate? Can this situation last?
What is the advantage of cascade structures for the majority shareholder? And for other shareholders?
What is the difference between a holding company discount and a conglomerate discount?
A company manager has a 55% stake in his unlisted company, in which a competitor also has a 32% stake. The former is keen to dilute the shareholding of the latter, without diluting his own stake at the same time. What should he do?
Why is the shareholding of a family-run business unstable in the long term? What is the likely future of such a business? How can this process be slowed down?
Two managers have a 25% and 75% stake respectively in a company. They are keen to bring in a capital investor with the minimum dilution to their shareholdings. How should they go about solving this problem?
Why would a company with an 85% stake in a subsidiary launch a takeover bid for the remaining 15%?
Provide a description of the shareholdings and management in the following situations:◦ Company 1: capital split between investors each holding the blocking minority;◦ Company 2: large group holding absolute majority, rest widely held;◦ Company 3: no shareholder has more than 5% of
Which financial theory best explains the development of corporate governance?
Why has corporate governance mainly developed at listed companies?
How do stock options help in aligning the interests of managers with those of shareholders? What are their limitations?
Name a firm where practically all of the directors were independent, which did not prevent it from experiencing severe financial difficulties in 2002, the result of a lack of control over managers.
What is the danger when a board has specialised committees?
What should an overworked director who has only been able to attend every other board meeting do?
What is the most important – an independent director, a hardworking director, a competent and courageous director? What is the ideal?
In which countries is it more important for a firm to have a system of corporate governance in place?
What is the link between corporate governance and the cost of capital?
Does the regular rotation of a firm’s statutory auditors improve corporate governance?
Is corporate governance relevant at companies over which the state exercises full control?
What are your views on a firm that replaces its one-tier board with a two-tier board and then, a few years later, reverts to a one-tier board, like Suez did, or which asks its chief executive officer to be chairman of the board as well before reverting to the previous system a few years later, like
Is it a good idea, with a view to providing directors with better information, for the auditor to be a director of the company as well?
What are the pros and cons of separating the position of chairman of the board from that of CEO?
What are the advantages and drawbacks of private negotiation?
What are the advantages and drawbacks of a private sale by auction?
What is the advantage of a public purchase or share exchange offer for a minority shareholder?
What advantages does a public offer have for the acquirer over an acquisition on the market? What are the drawbacks?
Can a company launch an offer to buy another company that is for sale without having any real intention of closing the deal? Why? What protection is there for the seller?
What will be key to make an M&A deal a successful event in a company history?
Why are earnout clauses so popular with companies in the service sector?
All things being equal, what is the downside of a deal being kept highly confidential?
When is it a good idea to go for a private auction?
How can a buyer be protected against any hidden liabilities and debts that the target may have?
What is the purpose of representations and warranties? What are the limits of such clauses?
What is the logical result of a successful hostile buy-up of shares on the market?
What market authorities’ concern is addressed by a suspension of trading after notice of an offer has been filed?
Why are defence mechanisms against hostile takeover bids very strictly regulated?
On the basis of financial theory, how can the role of an investment bank in a deal be summarised?
What is the fundamental difference between a merger and a sale:◦ for the shareholder of the acquired company?◦ for the acquiring company?◦ for the shareholder of the acquiring company?◦ for the acquired company?
Unlike what happens when a company is sold, when companies merge, their shareholders’equity is added together. Why?
In your view, what are the possible reasons behind a merger? And a demerger?
Ignoring tax issues, would a shareholder with a 51% controlling interest in a company be better off buying another company or merging with it?
Is the dilution of EPS that follows all mergers generally greater or less than that which follows a standard capital increase?
Why is the determination of the exchange parity important?
What is the difference between the relative value ratio and the exchange ratio?
When negotiating, is agreement first reached on the relative value or on the calculation method?
Why do shareholders in an acquired company agree to the dilution of their shareholdings after completion of the merger?
Where does the creation of value lie in a merger?
Why are the legal procedures related to mergers so onerous?
In what circumstances can a demerger lead to creation of shareholder value? And value for creditors?
Can the success of a merger be judged by comparing the market performance of the new entity with that of the reference index?
Can the success of a merger be judged by looking at the change in share price of the companies when the merger is announced?
Alpha AG is wholly owned by Mr Alpha and Beta AG is wholly owned by Mr Beta. The key figures for the two companies are as follows:Alpha acquires Beta. Calculate the shareholdings (as a percentage) of Mr Alpha and Mr Beta using net profits, equity value and book equity. What are your conclusions?
Below are the key figures for Gamma plc and Delta plc:(a) Gamma acquires Delta. The criterion selected for calculation purposes is equity value. Calculate the old and new EPS, equity per share, and the percentage of the shareholdings of the former shareholders of Gamma in the new entity.(b) Redo
Explain why an LBO is a type of capital reduction.
What risks are involved in an LBO?
Can mezzanine financing in the context of an LBO be compared with equity or debt?
In the context of an LBO, does the holder of senior debt take more or less risk than the holder of junior debt?
Can an LBO be carried out on a startup company?
In a secondary LBO, can an LBO fund accept that the management team does not reinvest part of the capital gains achieved on the first LBO in the new LBO? Why?
What are the different possible exit routes after an LBO?
How does corporate governance of an LBO differ from that of a listed company with no major shareholder?
How does corporate governance of an LBO differ from that of most unlisted family companies?
Why do companies go bankrupt?
What risks do you take if you buy a subsidiary of a group that you know is in financial distress?
Do the same types of conflict arise in the event of the bankruptcy of a partnership and that of a limited company? Why?
How in some countries can bankruptcy play a role in the survival of the company?
How do bankruptcy costs impact on the tax breaks available on debt?
Why are companies that are emerging from bankruptcy proceedings often strong competitors?
Why are companies in France that are emerging from bankruptcy proceedings rarely strong competitors?
Can a company with no debts go bankrupt? Can it destroy value?
Why is a company able to get back on its feet financially during the bankruptcy period?
Why do creditors agree to grant loans to companies during the bankruptcy period?
What are the pros of a creditor-friendly bankruptcy procedure for shareholders?
Name countries which have creditor-friendly bankruptcy procedures.
What are the three key objectives of a corporate treasurer?
What are the three cash positions for a company?
What is a value date?
What is a concentration account?
What is the main difference between national group pooling and international group pooling?
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