案例2017年历年mock2009-二级mock

2015LevelIIMockExam:AfternoonANSWERSANDTeaCaseChristianMathew,CFA,isanequity ystspecializinginthebeverageindustry,forGuptaAssetManagers(Gupta),aportfoliomanagementcompanybasedinMumbai,.MathewisplanningatriptoSriLankatoresearchtheteaindustry.MuraliPremadosa,CFA,knownas“Prem,”isaresearch ystforastockbrokingcompany,AshokaBrokers,headquarteredinColombo,SriLanka.MathewcontactsPremtohelparrangevisitstospecificallyidentifiedteaestatesofpubliclytradedcompaniesinthehighlandsofSriLanka.Prem,wantingtoenhancethebusinessrelationshipwithGupta,arrangesforallofMathew’sSriLankanexpensestobepaidforbyAshoka.Thesecostsincludefood,hoandtransport.ThisarrangementisbasedontheunderstandingthatallsecuritytransactionsresultingfromMathew’striptoSriLankawillbeexecutedthroughAshoka.Ashoka’scommissionsaretypicallysimilartoitscompetitorsbutitcantakeafewextradaystoexecuargervolumesoftradesbecauseAshokaisnewtothebrokeragebusiness.Premsetstheitinerary,withplanstovisitaminimumofsixSriLankateacompaniesinthethreetea-growingregions.MathewagreestothevisitsandasksPremtocreatealistofquestionstoaskthemanagementofeachcompanytowhichhewilladdhisownquestions.MathewasksPremtodelaythereleaseofanyresearchreporthewritesonthesixSriLankacompaniestheyvisittogetheruntilsuchtimethatGuptahashadanopportunitytoactonMathew’s mendations.Premagreestothisarrangement.Inameetingwithapubliclylistedteacompany,KandyTeaEsta imited,informationisrevealedthatneitherMathewnorPrembelieveisinthepublicarena.Theinformationrelatestotherestructuringofthefactorylayouttomaketheteadryingprocessmarginallymoreefficientwitha1%reducedlossoftealeaf.Thenewlayoutdoesnotrequireanyadditionalmachineryor nel.PremandMathewseetheincreasedefficienciesduringtheirfactorytour.Afterthemeeting,PrempreparesaninvestmentresearchreportwiththeexcerptshowninExhibit1.ExhibitResearchReportonKandyTea KandyTeaEsta Date:December2013yst:MuraliPremadosaChartered mendation:Long-termbuywithassociatedhighcommodityrisksupportedbylargegrowthprospectsforSriLankaaswellasliquidityriskbecauseitisathinlytradedcompanyinafrontiermarket.TeaProductionby(millionSriNotes:CAGRiscompoundannualgrowthrate.Productionfor’sproductionin2009and2010isestimated.Sources:BasedondatafromtheTeaBoardandSriLankaTeaMathewisimpressedwithPrem’sworkethicandresearchabilities.KnowingGuptawantstohireystsforitsnewColombooffice,MathewasksPremifhewouldbeinterestedinchangingemployersandbuildingaresearchteam.PremisexcitedabouttheprospectandtoshowhisworthtoGupta,Premundertakesthefollowingactionsathisofficeafternormalworkinghourswithouttheknowledgeofhisemployer:Action1:CreatesalistofalltheworkhecompletedatAshokaonhis Action2:Photocopiesresearchreportsherecentlycompletedontheteaindustry.Action3:Makeshandwrittenexcerptsfrompreviousreseareetingnotes.UponMathew’sreturntoMumbai,hedeliverstohisclientshisinvestmentreportwitha mendationforKandyTeaEsta imited,alongwithteasampleshecollectedwhileinSriLanka.WhenbuyingKandysharesforhisclients,Mathewalsobuysthesamesharesforhis alaccount.Hehaddisclosedhisplantopurchasethesharesforhisownportfolioalongsidehisclientsbeforeheboughttheshares.However,Mathewisforcedtosellthesamesharestwoweekslatertopayforamedicalemergency.MathewreceivedpermissionfromGupta’scomplianceofficerforbothtransactions.【梦轩考资 专业提供CFAFRM全程+讲IsPrem’sarrangementtoenhancebusinessrelationsmostlikelyconsistentwiththeCFAInstituteCodeofEthicsandStandardsofProfessionalConduct?No,withregardtoindependenceandNo,withregardtobestAnswer=Prem’semployer,Ashokaisnotabletoprovidebestexecutionf customersbecauseofthelongertimeframerequiredtoexecutetrades,despitehavingsimilarcommissionstructurestootherbrokers.ThusMathewisinviolationofStandardIII(A)–DutiestoClients.Mathew’sindependenceandobjectivityareunlikelytobecompromisedbyPrem’sarrangingtheitinerarybecauseMathewhadspecificallyidentifiedthecompanieshewantedtovisit.MathewalsoaddedquestionstoPrem’slistofquestionstobeaddressedwithmanagementduringtheirinterviews,soMathew’sindependenceandobjectivitywouldnotlikelybecompromised.Ashoka’soffertopayforthetripexpensesalsodoesnotnecessarilycompromiseMathew’sindependenceandobjectivitywithregardtomakinginvestment mendationsortakinginvestmentaction(StandardI(B)IndependenceandObjectivity).Alsoofnote,theredoesn’tappeartobeanyevidencesoftdollarcommissionswerenotbeingusedforthebenefitofGuptaclientsbecausetheresearchtripisfortheirbenefit.CFALevel“GuidanceforStandardsI–VII”,byCFAInstituteStandardIII(A)–DutiestoClientsWhoismostlikelytohaveviolatedCFAInstituteStandardsinregardtothetimingofthereleaseofresearchreports?BothPremandAnswer=ByagreeingtoMathew’sstipulation,PremisinviolationofStandardIII(B).StandardIII(B)obligesCFAInstitutemembersandcandidatestoensurethatinformationisdisseminatedinsuchamannerthatallclientshaveafairopportunitytoactonevery mendation.PremletMathew’sclientstradeoninformationgarneredontheresearchtripbeforePremevendisseminatesthisinformationtohisclients,aviolationofStandardIII(B).Inaddition,StandardI(A)statesthatmembersandcandidatesareresponsibleforviolationsintheyknowinglyparticipateorassist.Bymakingastipulationregardingthereleaseofinvestment mendationsunfairlytoallAshokaclients,MathewisknowinglyparticipatingwithorassistingPreminviolatingStandardIII(B)andthusviolatesStandardI(A).Therefore,bothPremandMathewhaveviolatedCFAInstituteStandards.CFALevel“GuidanceforStandardsI–VII”,byCFAInstituteStandardIII(B)FairDealingIsanyfurtheractionmostlikelyrequiredofPremandMathewpriortopublishinganinvestmentreportusingtheinformationreceivedintheirmeetingwithKandyTeaEstate?Yes,convincethecompanytomakeapublicYes,independentlyverifytheinformationprovidedbytheAnswer=Whiletheinformationisnon-public,itisunlikelythatnewsofanewfactorylayoutwouldbeconsidered“material,”especiallyinthatitdoesnotrequirenewmachineryor nel.Therefore,nopublicdisclosureisrequired.IndependentverificationisnotnecessarilyrequiredbecausePremandMathewareabletoseetheincreasedefficienciesduringtheirfactorytour.CFALevel“GuidanceforStandardsI–VII”,byCFAInstituteStandardII(A)MaterialNonpublicInformationPrem’sresearchreportinExhibit1leastlikelyviolateswhichCFAInstituteStandardofProfessionalConduct?UseofCFACommunicationwithClientsC.Answer=ThestatisticscitedarereferencedasbeingfromtheTeaBoardandtheSriLankaTeaBoard.Thus,Premisnottryingtopasstheinformationoffashisown.However,hehasviolatedStandardVII(B)withregardtotheuseoftheCFAdesignation.Premisnotallowedtousehisdesignationasatitleornoun–thatis,“CharteredFinancial yst.”TheCharteredFinancial ystandCFAmarksmustalwaysbeusedeitherafteracharterholder’snameorasadjectives(neverasnouns)inwrittens.PremalsoviolatedStandardV(B)StandardV(B)CommunicationwithClientsandProspectiveClientsbycitingdatedteaproductioninformation.Asaresult,clientsareunlikelytobeabletofollowthereasoningbehindhis CFALevel“GuidanceforStandardsStandardVII(B)–ReferencetoCFAInstitute,theCFADesignation,andtheCFAProgram,StandardV(B)–CommunicationwithClientsandProspectiveClientsWhichoftheactionsthatPremundertakestoshowhisvaluetoGuptaismostlikelyconsistentwiththeCFAInstituteStandards?ActionActionActionAnswer=AlistofthereportsPremhascreatedisnotconsideredresearchsohehasnotviolatedStandardIV–DutytoEmployersorStandardV(C)–RecordRetention.Also,hecreatedthelistafterworkinghoursandusedhis allaptop,sohehasnotusedcompanyresourcestocreatethislist.CFALevel“GuidanceforStandardsStandardIV–DutytoEmployers,StandardV(C)–RecordMathew’sinvestmentactionsuponhisreturntoMumbaimostlikelyviolateCFAInstituteStandardswithregardstohis:disclosuretogiftsofteasamplestoalteaAnswer=MathewhasviolatedStandardVI(B)–PriorityofTransactions.Bybuyingthinlytradedsharesinafrontiermarketforhis alaccountatthesametimeasheisbuyingthemforhisclients,Mathewislikelytoharmhisclientsbecausethesharepriceswouldrisebeforeallthesharesarepurchased.ThegiftsofteasamplestohisclientsareinsignificantandunlikelytocontributetotheirdecisionstoimplementMathew’sinvestment mendation.Consequently,hehasnotviolatedStandardI(B)–IndependenceandObjectivity.Healsomadeappropriatepriordisclosurestohisclientsabouthisteainvestment,soheisnotinviolationofStandardVI(A)–Disclosureofs.CFALevel“GuidanceforStandardsStandardVI(B)PriorityofTransactions,StandardI(B)–IndependenceandObjectivity,StandardVI(A)–Disclosureofs【梦轩考资 专业提供CFAFRM全程+讲McGuinnCaseForsterInvestmentAdvisors(Forster)isasmallassetmanagementfirmmanagingfundsforbothretailandinstitutionalclients.Forsteralsoundertakesinvestment-bankingactivities,includingmarketmaking,butonlyforthesharesofafewcompaniesthatitfollowsclosely.Forster’sfinancedirector,whoalsoservesasthefirm’scomplianceofficer,hasgivennoticehewillretireinonemonth’stime.Forster’smanagingdirectorasksTerryMcGuinn,CFA,ifhewouldbeinterestedinbeingthecomplianceofficerafterthefinancedirectorretires.McGuinn,anindependentcomplianceconsultantwhoseclientsmostlyincludepensionfunds,agreestomeetthemanagingdirectortodiscusstheAtthemeeting,McGuinnistold,“ForsteradoptedtheCFACodeandStandards10yearsago.TheoutgoingfinancedirectorassuredusatthetimeweadoptedtheCodethatallofForster’spoliciesandproceduresmettherequirementsoftheCodeandStandardsandmostoftheir mendationsaswell.Asaresult,wementioncompliancewiththeCodeandStandardsinallofourmarketingmaterial.Weencourageyoutoimplementnewchanges,buttheimplementationwillneedtobecoordinatedthroughthehumanresourcesdepartment.”Afteragreeingonwrittenspecificdutiesandresponsibilitiesfortherole,McGuinnacceptstheoffertoa Forster’scomplianceofficeronapart-timeconsultancybasis.Onhisdayasthenewcomplianceofficer,McGuinnimmedia yreviewsadraftresponsetoarequestforproposal(RFP)tobesubmittedthenextdaytoapotentialpensionfundclient.TheproposalisidenticaltoanotherRFPsentoutthreemonthsagoandincludesForster’s anizationalchart,anin-depthdescriptionofitsinvestmentprocessandtheoccasionaluseofthird-partyresearchproviders,aguaranteeofaminimum5%investmentreturnandreturnofprincipalthroughaguaranteedstructuredsavingsproduct,underwrittenbyaninvestment-gradelifeinsurancecompany.McGuinnapprovestheRFP withoutmakinganychanges.Thatsameday,ColleenCollins,aresearch yst,approachesMcGuinn,concernedthatshemaybeinpossessionofinsiderinformation.CollinsrelateshowshewasatapartythenightbeforeandoverheardaconversationbetweentwoCEOsofcompeting,publiclylistedmanufacturingcompanies.TheCEOsdiscussed,butdidnotexpresstheiropinionson,thevalidityofarecentarticlepublishedinanonlineindustrynewsletter,whichwasspeculatingonthebenefitsofamergerbetweentheirtwocompanies.Thenewsletterisavailablebysubscriptiononly.OneofthesecompaniesisonForster’s mendedbuyFollowingthisconversation,McGuinnfeelsitisnecessarytoenhanceForster’srulesandprocedureswhendealingwithpossibleinsiderinformation.He mendsthefollowingchangestothecompany’spoliciesandprocedures:mendation1:Stopmarket-makingactivitieswheninpossessionofmaterialnonpublicinformation.mendation2:Regularlyreviewemployeeandproprietarytrading.mendation3:RequireallemployeestoattendanannualrefreshercourseonhowtoidentifyandhandlematerialnonpublicAfterreviewinghowForsterchoosesandretainsitsstockbrokerseveryyear,McGuinnmakesseveralchangesinthepolicy.Thefollowingguidelinesareimplementedandcommunicatedtoclients.Stockbrokerselectionmustbebasedonthebrokers’abilityto:Guideline1:provideaccountingsoftware.Guideline2:executeclienttransactionsefficiently.Guideline3:obtaininvitationstoinvestmentconferencesforloyalAfterundertakinginvestigationsbasedonananonymousreportMcGuinnconfirmsseveralForsterfundmanagerswerewitnessedbeingwinedanddinedoverthepastfewweeksbylargebrokeragefirmstryingtogetForster’sbusiness.Thesameemployeeshavenotnotifiedhimaboutthesedinners,aviolationofForster’sinternalpolicies.McGuinnnotifiestheemployeesinwritingthattheyhavebeenviolatingthecompanypolicy.Intheletterofnotification,herequirestheemployeestoabidebythepolicyintheIsMcGuinn’sproposedcomplianceofficerstructuremostlikelyconsistentwiththeCFAInstituteCodeandStandards?No,withregardtopoliciesandNo,withregardtoauthorityandAnswer=Forster’sadoptionoftheCFAInstituteCodeandStandardsdoesnotnecessarilyimplytheycurrentlyhaveinplaceproperpoliciesandprocedurestoensurecompliancewiththeCodeandStandardsandlocallegalandregulatoryrequirements.AccordingtoStandardIV(C)ResponsibilitiesofSupervisors,ifacompliancesystemisnon-existentorifanexistingcompliancesystemisinadequate,amembershouldnotacceptsupervisoryresponsibilityuntilthefirmadoptsreasonableprocedurestoallowadequateexerciseofsupervisoryresponsibilities.McGuinnshouldthusundertakeareviewpriortoacceptingtheposition,ascertainingthatproperpoliciesandproceduresareinplace.McGuinn’sauthorityandresponsibilityappeartohavebeenclearlydefinedthroughhiswrittentermsofreference,andhewasgivenauthoritytoimplementneededchanges.McGuinnwouldberequired,however,tosuperviseandcoordinatetheimplementationthroughthehumanresourcesdepartment.【梦轩考资 专业提供CFAFRM全程+讲CFALevel“GuidanceforStandardsI–VII”byCFAInstituteStandardIV(C)ResponsibilityofSupervisorsWhichitemintherequestforproposal(RFP)isleastlikelyconsistentwithStandardI(C)Misrepresentation?Useofthird-partyresearchThe anizationalGuaranteedinvestmentAnswer=TheRFPwasdoneonthebasisoftheold anizationalstructure,whichwouldhaveincludedtheretiredfinancedirector.StandardI(C)requiresmembersnottomisrepresentthequalificationsofafirm.Withaseniorprofessionalleavingthefirm,the anizationalstructureshouldbeupdatedpriortosubmittingaRFPforapotentialclient’sconsideration.CFALevel“GuidanceforStandardsI–VII”,byCFAInstituteStandardI(C)MisrepresentationDidCollinsmostlikelyreceiveinsiderinformationasdefinedbytheCFAInstituteStandards?No,becausetheinformationisconsiderednon-No,becausetheinformationisconsideredAnswer=Whendeterminingwhetherinformationisconsidered“insider,”thesourceoftheinformationmustbeassessedasrequiredbyStandardII(A)MaterialNonpublicInformation.Havinganindustryortradenewsletterspeculateonthebenefitsofamergerbetweentwocompaniesdoesnotnecessarilymeanthetwocompaniesareactuallymerging.ThetwoCEOsareoverhearddiscussingthenewsletterbutneverprovidetheirsoropinionsonthearticle,sotheinformationisonlyrelatedtothenewsletter.Thus,theinformationisnotconsideredmaterial.CFALevel“GuidanceforStandardsI–VII”,byCFAInstituteStandardII(A)MaterialNonpublicInformationWhichofMcGuinn’s mendationsisleastappropriatetoimplementaspermendedproceduresforcomplianceofStandardII(A)MaterialmendationmendationmendationAnswer=Whenafirmactsasamarketmaker,aprohibitiononproprietarytradingmaybecounterproductivetothegoalsofmaintainingtheityofinformationandmarketliquidity,asoutlinedinStandardII(A)MaterialNonpublicInformation.Insomecases,awithdrawalbythefirmfrommarket-makingactivitieswouldbeacleartiptooutsiders.Firmsthatcontinuemarket-makingactivitywhileinthepossessionofmaterialnonpublicinformationshould,however,instructtheirmarketmakerstoremainpassivetothemarket(i.e.,takeonlytheopposingsideofunsolicitedcustomertrades).CFALevel“GuidanceforStandardsI–VII”byCFAInstituteStandardII(A)MaterialNonpublicInformationWhichguidelinewithregardtochoosingstockbrokingservicesismostconsistentwithStandardIII(A)DutytoGuidelineGuidelineGuidelineAnswer=MembersandcandidateshavearesponsibilityunderStandardIII(A)Prudence,andCaretoobtainbestexecution(i.e.,atradingprocessthatseekstoizethevalueoftheclient’sportfoliowithintheclient’sstatedobjectivesandconstraints).StandardIII(A)Loyalty,Prudence,andCarerequiresaninvestmentmanagertouseclientbrokeragetothebenefitoftheclientandnottothefirmunlessthemethodsorpoliciesfollowedtoaddressthepotentialofinterestsisdisclosedtotheclientpriortothefirmreceivingthebenefit.Forsterdidnotdothiswithregardtotheaccountingsoftware.Inaddition,membersandcandidateshavearesponsibilityunderStandardIII(A)Loyalty,【梦轩考资 专业提供CFAFRM全程+讲Prudence,andCaretouseclientbrokeragetothebenefitofallclients,notagroupofselectclients,unlessitisunderadirectedbrokeragearrangement.Thatisnotthecaseinthisscenario.CFALevel“GuidanceforStandardsI–VII”,byCFAInstituteStandardIII(A)Loyalty,Prudence,andCareWithregardtothefundmanagersunderinvestigation,themostappropriateadditionalactionMcGuinnshouldtakeisto:monitortheirfuturerequireastatementstatingthebehaviorwillreportthemisconductupthechainofAnswer=Asasupervisor,underStandardIV(C)ResponsibilitiesofSupervisors,McGuinnhasaresponsibilityafterhenoticesandinvestigatestheviolationtomonitortheemployeestoensurethattheerrantbehaviorhaschangedandconformstotheCodeandStandards.Reportingtheviolationupthechainofcommandalongwithrequiringastatementfromtheemployeesstatingthebehaviorwillnotberepeatedisnotenough.CFALevel“GuidanceforStandardsI–VII”,byCFAInstituteStandardIV(C)ResponsibilityofSupervisorsBubsCaseAndrewBubsisthefounderandowner/operatorofpriva yheldBubsCandiesCompany(BCC).Broducesallofitscandyandsellsdirectlytoretailers.Thecandymarketisdominatedbyonelargepubliclytradedfirm,TressellCandies,whichcontrols30%ofthemarket.Twootherpubliclytradedcompetitors(Claire’sConfectionsandCindy’sSweets)eachcontrol11%ofthemarketwiththerestofthemarketevenlydividedbyeightotherfirms(BCCbeingoneofthesesmallerfirms).BubswantstohaveanadequateknowledgeofBCC’svalueandofthevaluepropositionofferedbypotentialacquirersofBCC.Inlate2013,hehiresJamesNelsonofNelsonPartnerstofindavalueforBCCandtoreviewotherissuesrelatedtopotentialchangesinindustrystructure.,NelsoncalculatestheexpectedfreecashflowforeachyearfromtheprojectionsinExhibit1anddeterminestheterminalvalueusingtheassumptionsinExhibit2.Usingdiscountedcashflowandothermethods,heestimatesthevalueofthefirmatof2013tobebetween$6.5millionand$8.2million.ExhibitBubsCandiesCompanyProjectedFinancialStatements,Year-End($OperatingInterest Taxexpense CurrentNetfixedTotalCurrentLong-termTotalRetainedTotalliabilities*estimatedyear-endvaluesforExhibitNelson’sAssumptionsforTerminalFreecashflow(FCF)*at of2016($FCFperpetualgrowthrateappliedbeyondCostofequity(impliedfromsimilarpublicdebtratio(Totaldebt/Totalassets)AdditionalDiscountrate(theweightedaveragecostofcapital)iscomputedbyusingthecapitalstructurewiththecostofdebtandthetaxratetakenfromthecurrentyearoftheysis(2013).*FCFissimilartofreecashflowtotheNext,NelsonandBubsdiscussattributesofthepubliclytradedfirmsintheTressellCandiesoutsourcesproductionofitsdifferentcandiesandfocusesmostofi ergyonitsretailoperations.Infact,someofBroductsarebroughttomarketusingTressell’sretailfacilities.Claire’sConfectionsislikeBCCinthatitproducescandy,butdoesnothaveitsownretailoutlets.Cindy’sSweetsproducesandmarketsitscandythroughitsownretailBubsandNelsonconsidertheimplicationofBCCbeingacquiredbyeitherTressellCandiesorClaire’sConfections.TheyclassifyeachpotentialacquisitionasaverticalmergerwithbackwardintegrationifacquiredbyTressellahorizontalmergerwithpotentialeconomiesofscaleifacquiredbyClaire’sAfterconsideringfurtherinformationonthepubliclytradedcompanies,showninExhibit3,NelsonobservesthatTressellcanpotentiallyincreaseitsearningspersharebyacquiringeitherClaire’sConfectionsorCindy’sSweetsinl-stockacquisition(assumingnochangesinthecurrentstockprices).AfterhearingthisinformationfromNelson,BubsdecidestocontactTresselltodiscussthepotentialsaleofBCCbeforeTressellcanactonacquiringClaire’sConfectionsorCindy’sSweets.【梦轩考资 专业提供CFAFRM全程+讲ExhibitCurrentPubliclyTradedFirmInformation,asof31DecemberRevenues($Earnings($Dividends($EarningspershareSharepriceforLater,afterfurtherinvestigation,BubsandNelsondiscoveraprovisionthatintheeventofatakeover,thebondholdersofCindy’sSweetscanimmediaysellbondsbacktoforBasedontheHerfindahl-HirsanIndex(HHI),thelevelofconcentrationinthecandymarketisbestcharacterisedas:not yhighlyAnswer=Thereareelevenfirms:onecontrols30%ofthemarket,twocontrol11%ofthemarket,andeightcontrol48%[100–30–(2×11)]ofthemarket(i.e.,exceptforthelargest,eachcontrols6%ofthemarket).UsingthefollowingequationtheWithanHHIbetween1,000and1,800,themarketisconsideredmodera CFALevel“MergersandAcquisitions,”RositaP.ChangandKeithM.MooreSection6.1BasedonExhibit1,theestimatedfreecashflow($thousands)forBCCin2014isclosestto:Answer=Freecashflow=Netoperatingprofitlessadjustedtaxes(NOPLAT)+Depreciation–Changeinnetworkingcapital–CapitalexpendituresNOPLAT=Net e+After-taxinterest+Changeindeferredtaxes369.3+1,123.2×(1–0.32)+Plusdepreciation(non-cashLesschangeinnetworking[3,698.9–943.7]–[1,538.7Lesscapital17,960.6–19,243.5+FreecashCFALevel“MergersandAcquisitions,”RositaP.ChangandKeithM.MooreSection7.1.1BasedonExhibits1and2,theamount($thousands)bywhichtheterminalvalueaddstotheestimatedcurrentvaluation(atof2013)ofBCCisclosestto:Answer=,calculatetheweightedaveragecostofcapitalProportionofdebt(%Proportionofequity(%equity=1–%Before-taxcostofdebtAfter-taxcostofdebt(rd-tax=rd×[1–TaxCostofequityWACC([rd-tax×%debt]+[re×%TheterminalvalueatofTheterminalvaluediscountedbacktoofCFALevel“MergersandAcquisitions,”RositaP.ChangandKeithM.MooreSection7.1.1Bubs'andNelson'sclassificationsofthetwomergersinwhichBCCmightbeacquiredaremostaccuratewithrespectto:TressellCandiesbothTressellCandiesandClaire’sClaire’sConfectionsAnswer=Bothclassificationsareaccurate.AnacquisitionbyTressellisaverticalmerger(bothareinthesameproductionchain)withbackwardintegrationbecauseBCCwouldgiveTressellproductionfacilities(i.e.,BCCisaheadofTressellinthevaluechainasar).AnacquisitionbyClaire’sConfectionsisahorizontalmergerbecausebothcompaniesdothesamething(candyproductionwithoutretailoutlets).Becausethemergerishorizontal,thereisthepossibilityforeconomiesofscale.CFALevel【梦轩考资 专业提供CFAFRM全程+讲“MergersandAcquisitions,”RositaP.ChangandKeithM.MooreSection2Nelson’sobservationthatTressellCandieswillbeabletoincreaseitsearningspershare(EPS)byexecutingl-stockacquisitionofeitherCindy’sSweetsorClaire’sConfectionsisbestcharacterizedascorrect:forbothonlywhenconsideringClaire’sonlywhenconsideringCindy’sAnswer=Tressell’spre-acquisitionearningspershare(EPS)equals$1.114andwouldincreaseto$1.20withtheacquisitionofCindy’sSweets,butwoulddecreaseto$1.10withtheacquisitionofClaire’sCalculationsofpotentialpost-acquisitionEPSforTressellareasNumberofTressell’sEPSafterClaire’s====Cindy’s==+==+===ternativeysisistocalculatetheprice-to-earningsratios(P/Es)forthethreecompanies:$22.50/1.114Claire’s$19.95/0.928Cindy’s$23.05/1.671Becauseofthebootstrapeffect,theEPSofanacquiringfirmwillincreasewhenthepre-acquisitionP/Eoftheacquirerishigherthanthepre-acquisitionP/Eofthefirm.TressellcurrentlyhasahigherP/EthanCindy’sSweets(20.20versus13.79),butdoesnothaveahigherP/EthanClaire’sConfections(21.50).Consequently,Tressell’sEPSwillrisewiththeacquisitionofCindy’sSweets,butwillfallwiththeacquisitionofClaire’sConfectionsbasedonthebootstrapCFALevel“MergersandAcquisitions,”RositaP.ChangandKeithM.MooreSection3.6TheprovisionrelatedtothebondsofCindy’sSweetsthatBubsandNelsondiscoverismostaccura ydescribedasa:“Pac-Man”poisonflip-inAnswer=Allowingthebondholdersofthefirmto“put”bondsbacktothecompanyatapriceaboveparisconsistentwithapoisonput.CFALevel“MergersandAcquisitions,”RositaP.ChangandKeithM.MooreSection5.1.2DaltoniaCaseDaltoniaisamedium-sizeddevelocountry.ernmentpolicieshavegraduallyopenedthebordersforinternationaltradeandtheflowofcapital.TradeisnowsubstantialwithmembersoftheEUandisoftendenominatedineuros(€).Duringtheearly2000s,privatizationofsomepubliclyownedindustries;creationofanewfree-floatingcurrency,theDornan(DRN);andsoundpoliciesimplementedatthecentralbankputtheeconomyonatrackforsteadygrowthandstability.MinisterofFinanceNaimBirolispreparinghisannualreportonthestateoftheeconomyandcurrencymarketsforthelegislativebranchofernment.Hewillexaminethelong-andshort-termtrendsinGDPgrowth,percapita e,inflation,andexchangerates.Heisalsoresponsiblefor mendingpolicyinitiativesforthelegislaturetoconsidertopromoteoveralleconomicprosperityforDaltoniancitizens.Toestimaong-termGDPgrowth,BirolexaminesthedatainExhibit1andintendstouseSolow’sgrowthaccountingequation.ExhibitLong-TermTrendsofDaltonianGrowthdueGrowthduetocapitalPopulationGrowthrateoftotalfactorGrowthinlaborGrowthinShareofGDPpaidtoBirolconsultshiscolleagueZiyaPamuktoreviewthepolicychoicesfacingthe ernmentandthepossibleeffectsoneconomicgrowthandpercapitaPamukstates:Daltonia’spoliticiansaredebatingtheeffectsofgrowthratepoliciesfocusedonthree higherratesofsavingandimportingmoretechnologicalinnovations,greaterinvestmentinresearchanddevelopment

Theimpactfromthesepolicieswillcausealong-termincreaseintheeconomy’sgrowthrateandthestandardofliving.Furthermore,ifweemphasizeR&Dspending,thenhigherratesofsavingandinvestmentareunlikelytoencounterdiminishingmarginalreturns.【梦轩考资 专业提供CFAFRM全程+讲BirolbelievesDaltonianeedstoaddressarecentincreaseininflationandappreciationintheexchangerate.Ifthesetrendsaccelerate,thecountry’spresentprosperitycouldbethreatened.BirolandPamukdiscusspolicyalternatives.Birolstates: BecauseDaltoniaallowscapitaltoflowfreely,theclearestchoiceistoimplementexpansionarymonetarya