Meg plc is a large retailer of electrical products. Examine the data about Meg plc, at the end of this paper and produce a report on the risks and rewards of the business.

At the beginning of 2023, the company will have to repay a loan of £500 million and is prepared to seek a further loan or issue new shares, if necessary.

Your report should have a suitable title and may contain the following sections:

1 Discussion

1.1 Budgetary control report

1.2 Ratio analysis

1.3 Cash budget for 2021

1.4 Refinancing

2 Summary of Recommendations

3 References

To prepare the cash budget for 2021 you should assume that the market will be 5% bigger than it was in 2020.

     

2. Assume that a private equity company is prepared to take a 15% holding in the business (in question 1) for £500 million, at the beginning of 2023.

Required:

Using discounted cash flow techniques, calculate how long would take the private equity company to recover its investment.

Assume that:

• Their cost of capital is 10% per year

After 2023, cash receipts increase by 5% a year, and cash payments increase by 4% a year.
 
 
 

Transcribed Image Text:

Budgetary Control Report for Meg plc at the end of 2021 Sales Revenue Cost of Sales Gross Profit Depreciation Other operating expenses Operating profit Interest paid Profit before Taxation Taxation Profit for the year Budget Em 10,426 (8,204) 2,222 310 (1,566) 656 -32 624 -58 566 Actual Em 10,531 (8,371) 2,160 310 (1,529) 631 -32 599 -53 546 Variance Em 105 Fav 167 Adv 62 Adv 0 37 Fav 25 Adv 0 Fav 25 Adv 5 Fav 20 Adv Budgetary Control Report for Meg plc at the end of 2021 Sales Revenue Cost of Sales Gross Profit Depreciation Other operating expenses Operating profit Interest paid Profit before Taxation Taxation Profit for the year Budget Em 10,426 (8,204) 2,222 310 (1,566) 656 -32 624 -58 566 Actual Em 10,531 (8,371) 2,160 310 (1,529) 631 -32 599 -53 546 Variance Em 105 Fav 167 Adv 62 Adv 0 37 Fav 25 Adv 0 Fav 25 Adv 5 Fav 20 Adv

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A budget performance report is a management report that compares the actual revenues and costs for a ... View the full answer