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Avoid the Hustle

Strategic Investment Management

Question 1

(a) Calculate the weighted average cost of capital (WACC) for both Sesperian plc
and Agrosolutions plc, and then determine which one should be used in the
valuation calculations. No explanation is required of your choice of WACC. [7
marks] 
(b) Using the Discounted Cash Flow method, calculate the stand-alone valuation
of Agrosolutions plc prior to the inclusion of synergies. [20 marks]
(c) Recalculate the stand-alone valuations of Agrosolutions plc after the inclusion
of the synergies. [8 marks]

Question 2

(a) Outline a bidding strategy that the Board of Sesperian plc might have
formulated based on the valuations calculated in parts (b) and (c) above. [15
marks] 
(b) In the discussion regarding which WACC to use for the valuation of
Agrosolutions plc Rufus Banda mentioned that different WACCs might be
needed to reflect different financial risk and business risk. Using suitable
examples, including those drawn from the case study, distinguish between
business and financial risk and from your research discuss how such risks
can be alleviated in practice. [15 marks]

Question 3

(a) Explore how behavioural aspects can influence financial decisions in general,
and then more specifically to the case study. In particular draw on the
comments made by Jay Sixsmith regarding the fear of overpayment for the
acquisition of Agrosolutions plc. [17 marks]
(b) Provide a critical appraisal of the comment made by Rebecca Donato that it
was debateable that efficient markets exist at all levels. You are expected to
appraise the general concept of efficient financial markets, as well as
exploring the implications of efficient markets to this case study in particular.
[18 marks]

Strategic Investment Management

Question 1

(a) Calculate the weighted average cost of capital (WACC) for both Sesperian plc
and Agrosolutions plc, and then determine which one should be used in the
valuation calculations. No explanation is required of your choice of WACC. [7
marks] 

(b) Using the Discounted Cash Flow method, calculate the stand-alone valuation
of Agrosolutions plc prior to the inclusion of synergies. [20 marks]
(c) Recalculate the stand-alone valuations of Agrosolutions plc after the inclusion
of the synergies. [8 marks]

Question 2

(a) Outline a bidding strategy that the Board of Sesperian plc might have
formulated based on the valuations calculated in parts (b) and (c) above. [15
marks] 

(b) In the discussion regarding which WACC to use for the valuation of
Agrosolutions plc Rufus Banda mentioned that different WACCs might be
needed to reflect different financial risk and business risk. Using suitable
examples, including those drawn from the case study, distinguish between
business and financial risk and from your research discuss how such risks
can be alleviated in practice. [15 marks]

Question 3

(a) Explore how behavioural aspects can influence financial decisions in general,
and then more specifically to the case study. In particular draw on the
comments made by Jay Sixsmith regarding the fear of overpayment for the
acquisition of Agrosolutions plc. [17 marks]
(b) Provide a critical appraisal of the comment made by Rebecca Donato that it
was debateable that efficient markets exist at all levels. You are expected to
appraise the general concept of efficient financial markets, as well as
exploring the implications of efficient markets to this case study in particular.
[18 marks]