Performance, efficiency, risk and liquidity of the business

Question 1 

 

 

You are required to project an earnings statement and balance sheet for Arm holding plc for the next five year discussing both the assumptions within your forecast and the implications of your projections for the performance, efficiency, risk and liquidity of the business.    

 

 

 

Question 2  

 

 

You are required  to:

(i)Estimate the weighted average cost of capital used by the company as a whole in undertaking its impairment tests based upon the information in (e.g. 2012 accounts.)  

 

(ii) Compare the estimate derived in (i) with your own estimate using external market data and comment upon the implications of any discrepancy between the two estimates for the firm’s investment decision making and performance reporting.  

 

 

Question 3 

 

On the basis of your five year forecast in question 1 you are required to:

 

(i) Produce a spot valuation of the equity of the company (price per share) and an estimate of the potential range of share prices that the assumptions in your valuation model imply.  

(ii) Discuss the extent to which your estimate of the range of share prices in (i) explain the observed volatility of share prices in the market.  

 

Question 4 

Using both financial measures and structural analysis assess the exposure of arm holding to default risk.  You should discuss the extent to which the two approaches are complementary and the extent to which they differ.   

 

 

Question 5 

Our understanding of value is controlled by three, theoretical entities:  the net present value model, the theory of capital asset pricing and the value of options through the option pricing model.  You are required to explain how these models relate to the theory of value and to assess the validity of this statement.

 

 

Question 6 

The professionalization of financial analysis has not created an elite group of market professionals who can consistently earn a return on the basis of their expertise.   Discuss the reasons why this might be true evaluating any empirical evidence that might support this statement.

 

 

Question 7 

A higher education funding agency has commissioned you to review the practices of the Council of a small local university.  The university is legally established as a company limited by guarantee and has been in existence for 50 years.  Any surpluses it makes reinvested to further the academic purposes of the institution.  The members of Council are directors of the company and the Council is its board of directors for legal purposes.  The university has been making substantial surpluses and has strong reserves and a healthy cash flow – it does, however,  receive the majority of its income from the state through the higher education funding agency. 

You are required to:

(i) Outline the principles of corporate governance that might be relevant to the Council of an organisation such as this. 

(ii) Discuss the steps that you would take and the evidence you would need to collect to establish the extent to which the university complies with the principles you have identified in (i). 


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