Syllabus

A. Role of senior financial adviser in MNC

B. Advanced investment appraisal

C. Corporate reconstruction and re-organisation

D. Acquisition and mergers

E. Treasury and advanced risk management techniques

? E. Treasury and advanced risk management techniques

2018 Sep Q1

2020 March Q2

 2018 Sep Q1

Required:

(a) Discuss how investing in overseas projects may enable Washi Co to gain competitive advantage over its competitors, who only invest in domestic projects. (5 marks)

(b) Discuss the advantages and drawbacks of exchange traded option contracts compared with over-the-counter options. (5 marks)

(c) Prepare a report for the board of directors of Washi Co which:

(i) Estimates the expected amount of JPY receivable under each hedge choice and the additional debt finance needed to fund the Airone project for the preferred hedge choice; (12 marks)

(ii) Estimates the net present value of the Airone project in Japanese Yen, based on the end of year one being the start of the project (year 0); (9 marks)

(iii) Evaluates the preferred hedge choice made, the debt finance needed and whether the Airone project should be undertaken, considering both financial and non-financial factors. (8 marks)

Professional marks will be awarded in part (c) for the format, structure and presentation of the report. (4 marks)

(d) Washi Co’s chief operations officer (COO) has suggested that it would be more beneficial for the company to let its major subsidiary companies have their own individual treasury departments, instead of having one centralised treasury department for the whole company.

Required: Discuss the validity of the COO’s suggestion. (7 marks)

(50 marks)

Washi Co is a large, unlisted company based in Japan and its local currency is the Japanese Yen (JPY). It manufactures industrial equipment and parts. Initially Washi Co’s customers consisted of other Japanese companies, but over the last 12 years it has expanded into overseas markets and also sources its materials from around the world. The company’s board of directors (BoD) believes that the strategy of overseas investments, through subsidiary companies, branches and joint ventures, has directly led to the company’s substantial increase in value in the past few years.