AC3059 Financial Management Assignment Answers to Questions

Assignmenthelpaus.com is the cheapest assignment help provider in Australia. Despite providing affordable essay assignment help, we never compromise on the quality of delivered papers. Our essay homework help services come with quality and plagiarism guarantee. Hence, students receive premier quality essay help solutions. This makes us one of the most long-lasting yet affordable essay writing companies in Australia. 

AC3059 Financial Management Homework Answers to Questions

Course Code: AC3059

Course Title: financial management

There are no gains associated with the acquisition. In exchange for Mintaka’s shares, Orion issues just enough of its own shares to ensure its 267p earnings per share objective. Please find the following information:

Orion Mintaka Earnings per Share £2.00£2.50 Price per Share £40£25 Price-Earnings Ratio 2010 Number of Shares 100,000200,000 Earnings £200,000£500,000 Market Value £4,000,000 £5,000,000

Required:

a) How many shares in the combined firm have to be offered for each share in Mintaka?

b) Derive the earnings per share, price per share, price-earnings ratio, earnings, and market value associated with the combined firm.

c) What is the cost of the acquisition to Orion?

d) What is the change in the market value of Orion’s shares that were outstanding before the acquisition?

Question 3

Tin Resources (TR), an all-equity firm, is considering purchasing the rights to operate an iron ore mine in the Pilbara region of Western Australia. Acquiring the rights will cost $60,000 today but will also oblige TR to pay substantial environmental rehabilitation costs of$250,000 when the mine is shut down in 3 years’ time. While in operation, the mine is expected to produce 20,000 tons of iron ore per year, with extraction costs running at $93 per ton. Although TR knows it can sell iron ore in the market for $100 per ton in the first year, it faces considerable uncertainty regarding the future iron ore price, which is equally likely to rise by 10% or fall by 15% in each of the subsequent two years. There are no taxes or any other costs. Unless otherwise stated, assume any cash flows occur at the end of each year. Use a discount rate of 20%for all cash flows. Show your calculations.

Required:

a) Draw a binomial tree depicting the possible market prices of iron ore during the mine’s operating life. Remember, the price in year 1 is known with certainty. What is the expected market price of iron ore in years 2 and 3?

b) Calculate the NPV of the project. Should TR purchase the rights? Now assume that TR has the ability to temporarily halt extraction operations if iron ore prices move adversely. However, by doing so, it cannot avoid paying the environmental rehabilitation costs at the end of the mine’s life.

c) When will TR choose to exercise this option? Explain fully.

d) Determine the value of the abandonment option