精算師SOA歷年真題:November2004Course8F
發布時間：2014-02-26 共5頁
13. (11 points) You are the CFO for Montague Debt Management. Montague’s balance
sheet currently consists of $700 million in assets financed in part by $650 million of
equity. The after-tax return on assets is normally distributed with a mean of 13% and
standard deviation of 7%. Assume the corporate tax rate is 30%.
Debt financing is currently provided by a single source, the Bank of Verona (BOV), at a
pretax rate of 10%. BOV requires a positive return on equity (ROE) with a probability of
at least 95%.
Montague is considering restructuring its capital by increasing the debt financing from
BOV. R & J Capital, a regional investment bank, recently suggested to Montague’s
senior management that preferred stock or public debt issuance may be more attractive
options than additional bank debt.
You are given the following statistics with respect to the Standard Normal Distribution:
( Pr X ≤ z) z
0.50 0.000
0.67 0.431
0.75 0.674
0.80 0.842
0.90 1.282
0.95 1.645
0.99 2.326
(a) (3 points) Determine the maximum leverage for Montague that satisfies BOV’s
constraints. Show all work.
(b) (1 point) Identify the factors that impact the debt capacity decision for Montague
and for BOV as they contemplate the debt financing decision.
(c) (2 points) Montague’s Board has asked you to differentiate public debt and
preferred stock in relation to the following points:
• Priority of claim
• Control rights
• Corporate tax shields
• Tax liability for individual and corporate claim holders
Outline your reply.
COURSE 8: Fall 2004 - 15 - STOP
Finance Segment
Afternoon Session
13. Continued
(d) (3 points) Assume Montague has decided not to raise additional debt at this time.
R & J Capital has performed an analysis of Montague’s equity using the Equity
Cashflow Valuation method and has determined that Montague’s equity is
currently overvalued. As a result, R & J Capital has recommended a public equity
offering.
Identify how R & J Capital’s chosen valuation method may bias their conclusion.
(e) (2 points) Assume the risk-free rate is 4% at all maturities and the current market
price of the debt is 90%. Calculate the amount by which R & J Capital has
misestimated the value of Montague’s equity.
14. (4 points) You are the CFO for the small life insurance subsidiary of a large, publiclytraded
diversified financial services organization. The subsidiary is fairly new and is
growing rapidly by expanding into newer products and markets. The CEO of the life
subsidiary has just told you the parent company has been acquired by a competitor.
While the acquisition was friendly, the acquirer does not intend to continue operating the
life subsidiary.
(a) Assume that the life subsidiary becomes a stand-alone organization. Recommend
an appropriate capital structure for the life subsidiary. Support your answer.
(b) The CEO invites you to join a partnership of senior executives considering a
leveraged buyout (LBO) of the life subsidiary. State the ways in which an LBO
structure might improve the way the life subsidiary is run.
(c) Indicate whether an LBO is appropriate for this situation. Support your answer.
**END OF EXAMINATION**
AFTERNOON SESSION
