i. Interest rate policy. The government can exert direct control over the level of interest rates. It
might pursue a high interest rate policy with the primary purpose of restricting consumer credit, and
one side effect of this will be to raise the cost of finance for companies. However, such a policy can
also be of help to a company since it may serve to attract foreign investment and thus improve the
availability of finance. High interest rates will also serve to support the exchange rate, and this may
reduce the need for external financing for importers since they are able to generate funds internally
through better margins.
A low interest rate policy is often pursued with the aim of promoting industrial growth. The cost of
finance to industry is reduced, allowing firms to compete more easily against foreign competition.
The currency is likely to be weaker, and therefore exporters are able to earn better margins and to
generate more funds internally.
ii. Demand management. The government will often try to achieve growth in aggregate demand
by creating conditions which promote industrial investment and which seek to improve the balance
of payments. This may involve help for exporters who are again able to earn better margins and
thus to generate more funds internally.
iii. Encouragement of free market forces. Governments try to stimulate economic growth (and
therefore investment) by a greater liberalization of markets and by attempting to open up wider
global markets
iv. Regional aid. This can be administered on a national and on a reginal level. The aim is to help
areas with a depressed local economy to achieve economic growth. In order to do this direct grant
aid may be available to companies who locate in assisted areas.
v. Selective national assistance. Where the government wishes to promote the development of a
particular industrial sector that is seen to have strategic importance for the national economy,
assistance may be given.
vi. Fiscal incentives. The government may seek to encourage investment through the tax system.
Capital allowances are available on capital expenditure, and the fact that corporation tax is collected
in arrears, can help company cash flows.
vii. Export Credit Guarantee Department. This provides long-term guarantees to banks on behalf of
exporters.
Kavungya answered the question on April 14, 2021 at 19:05
- Outline how a major refurbishment of publicly funded hospital facilities might affect the Public Sector
Borrowing Requirement.
(Solved)
Outline how a major refurbishment of publicly funded hospital facilities might affect the Public Sector
Borrowing Requirement.
Date posted: April 14, 2021. Answers (1)
- In a mixed economy, two of the objectives of a government could be;
(a) To minimize its borrowing requirements; and
(b) To reduce the taxation of incomes.
Required
(a)...(Solved)
In a mixed economy, two of the objectives of a government could be;
(a) To minimize its borrowing requirements; and
(b) To reduce the taxation of incomes.
Required
(a) Identify the general economic effects of these policies on private sector businesses.
(b) Discuss what particular effects might result from attempts to achieve these objectives by each of:
(i) Reductions in public expenditure;
(ii) Increases in charges made for the products or services of nationalized industries;
(iii) Selling nationalized assets.
Date posted: April 14, 2021. Answers (1)
- Outline the basic steps in capital improvement program.(Solved)
Outline the basic steps in capital improvement program.
Date posted: April 14, 2021. Answers (1)
- Explain the categories of long-term bonds.(Solved)
Explain the categories of long-term bonds.
Date posted: April 14, 2021. Answers (1)
- State and explain the short-term instruments used to generate cash to meet expected spending needs.(Solved)
State and explain the short-term instruments used to generate cash to meet expected spending needs.
Date posted: April 14, 2021. Answers (1)
- Outline the reasons why financial management in government departments is different from financial management in an industrial or commercial company.(Solved)
Outline the reasons why financial management in government departments is different from financial management in an industrial or commercial company.
Date posted: April 14, 2021. Answers (1)
- X Ltd intends to take-over Y Ltd by offering two of its share for every five shares in Y Company Ltd.
Relevant financial data is as...(Solved)
X Ltd intends to take-over Y Ltd by offering two of its share for every five shares in Y Company Ltd.
Relevant financial data is as follows:
Required.
a. Compute the combined EPS & MPS
b. Has wealth been created for shareholders?
Date posted: April 14, 2021. Answers (1)
- The following data are pertinent for companies A and B.
a. If the two companies were to merge and the exchange ratio were one share of...(Solved)
The following data are pertinent for companies A and B.
a. If the two companies were to merge and the exchange ratio were one share of Company A for each share of Company B, what would be the initial impact on earnings per share of the two companies? what is the market value exchange ratio? Is the merger likely to take place?
b. If the exchange ratio were two shares of Company A for each share of Company B what would happen with respect to the above?
c. If the exchange ratio were 1.5 shares of Company A for each share of Company B, what would happen?
d. What exchange ratio would you recommend?
Date posted: April 14, 2021. Answers (1)
- Outline the roles of investment bankers in mergers.(Solved)
Outline the roles of investment bankers in mergers.
Date posted: April 14, 2021. Answers (1)
- XYZ Ltd. is considered acquiring ABC Ltd. The following information relates to ABC Ltd. for the next five years. The projected financial data are for...(Solved)
XYZ Ltd. is considered acquiring ABC Ltd. The following information relates to ABC Ltd. for the next five years. The projected financial data are for the post-merger period. The corporate tax rate is 40% for both companies.
Other information
a. After the fifth year the cashflows available to XYZ from ABC is expected to grow by 10% per
annum in perpetuity.
b. ABC will retain Shs 40,000 for internal expansion every year.
c. The cost of capital can be assumed to be 18%.
REQUIRED:
i. Estimate the annual cash flows.
ii. Determine the maximum amount XYZ would be willing to acquire ABC at.
Date posted: April 14, 2021. Answers (1)
- Company A is considering the acquisition by shares of Company B. The following information is also available.
Company B has agreed to an offer of Shs...(Solved)
Company A is considering the acquisition by shares of Company B. The following information is also available.
Company B has agreed to an offer of Shs 35 a share to be paid in Company A shares.
Consider the effect of the acquisition to the earnings per share.
Date posted: April 14, 2021. Answers (1)
- Outline the reasons behind failed business mergers.(Solved)
Outline the reasons behind failed business mergers.
Date posted: April 14, 2021. Answers (1)
- Describe the overall merger and acquisition process.(Solved)
Describe the overall merger and acquisition process.
Date posted: April 14, 2021. Answers (1)
- State and explain the reasons of business mergers.(Solved)
State and explain the reasons of business mergers.
Date posted: April 14, 2021. Answers (1)
- State and explain the types of mergers.(Solved)
State and explain the types of mergers.
Date posted: April 14, 2021. Answers (1)
- XYZ ltd. is considering three possible capital projects for next year. Each project has a 1 year life, and
project returns depend on next years state...(Solved)
XYZ ltd. is considering three possible capital projects for next year. Each project has a 1 year life, and
project returns depend on next years state of the economy. The estimated rates of return are shown below.
a. Find each project expected rate of return, variance, standard deviation and coefficient of
variation.
b. Compute the correlation coefficient between
i. A and B
ii. A and C
iii. B and C
c. Compute the expected return on a portfolio if the firm invests equal wealth on each asset.
d. Compute the standard deviation of the portfolio.
Date posted: April 13, 2021. Answers (1)
- The risk free rate is 10% and the expected return on the market portfolio is 15%. The expected returns for 4
securities are listed below together...(Solved)
The risk free rate is 10% and the expected return on the market portfolio is 15%. The expected returns for 4
securities are listed below together with their expected betas.
a. On the basis of these expectations, which securities are overvalued? Which are undervalued?
b. If the risk-free rate were to rise to 12% and the expected return on the market portfolio rose to 16%,
which securities would be overvalued? which would be under-valued? (Assume the expected returns
and the betas remain the same).
Date posted: April 13, 2021. Answers (1)
- Securities D, E and F have the following characteristics with respect to expected return, standard deviation
and correlation coefficients.
Compute the expected rate of return and standard...(Solved)
Securities D, E and F have the following characteristics with respect to expected return, standard deviation
and correlation coefficients.
Compute the expected rate of return and standard deviation of a portfolio comprised of equal investment in
each security.
Date posted: April 13, 2021. Answers (1)
- Security returns depend on only three risk factors-inflation, industrial production and the aggregate degree of
risk aversion. The risk free rate is 8%, the required rate...(Solved)
Security returns depend on only three risk factors-inflation, industrial production and the aggregate degree of
risk aversion. The risk free rate is 8%, the required rate of return on a portfolio with unit sensitivity to
inflation and zero-sensitivity to other factors is 13.0%, the required rate of return on a portfolio with unit
sensitivity to industrial production and zero sensitivity to inflation and other factors is 10% and the required
return on a portfolio with unit sensitivity to the degree of risk aversion and zero sensitivity to other factors is
6%. Security i has betas of 0.9 with the inflation portfolio, 1.2 with the industrial production and-0.7 with
risk bearing portfolio—(risk aversion)
Assume also that required rate of return on the market is 15% and stock i has CAPM beta of 1.1
Required:
Compute security i's required rate of return using
a. CAPM
b. APT
Date posted: April 13, 2021. Answers (1)
- Assume that the risk free rate of return is 8%, the market expected rate of return is 12%. The standard deviation of the market return...(Solved)
Assume that the risk free rate of return is 8%, the market expected rate of return is 12%. The standard deviation of the market return is 2% while the covariance of return for security A and the market is 2%.
What is the required rate of return on Security A?
Date posted: April 13, 2021. Answers (1)