Clear explanations for an helpful rating

United Stores, a large long standing retailer, has provided the following extracts from

its most recent report and accounts:

$000

Income statement

Revenue 600

Operating profit 75

Interest paid 50

Profit before tax 25

Balance sheet

Property 400

Inventories 50

Cash 10

Total assets 460

Bank loans and overdrafts 100

Corporate bonds 300

Dividends payable 50

Total liabilities 450

Net assets 10

Total equity 10

Cash flow statement

Net cash from operations 15

Net cash from investing operations (25)

Net cash from financing operations (75)

Net (decrease)/increase in cash and cash equivalents (85)

(i) Comment on these figures, including an assessment of the company's balance

sheet and the composition of its income statement. [8]

United Stores has decided to refurbish its stores in an effort to attract new

customers. To achieve this, the management believes the company will need $20,000.

(ii) Describe how the company may be able to raise this sum. [2]

A rival of United Stores offers to buy the company for $20,000.

(iii) Suggest reasons why the rival is prepared to pay double the net asset value for

United Stores. [5]

(iii) Explain whether or not there is a saddle point. Consider the following time series model: (1 - aB) X, = E, where B is the backshift operator and e, is a standard white noise process wit variance o'. (i) Determine for which values of a the process X, is stationary. Now assume that X, is stationary. (ii) Calculate the autocorrelation function for the first two lags: p, and p the Yule-Walker equations. (iii) State the formulae, in terms of p, and py, for the first two values of th auto correlation function o, and or Now assume that a = 1. (iv) Explain how to fit the parameter of this model, given the time series observations X,, X, .... XT