ACCA AFM Syllabus B. Advanced Investment Appraisal - Adjusted present value - Past Papers ^{18 / 19}

Amberle Co is a listed company with divisions which manufacture cars, motorbikes and cycles. Over the last few years, Amberle Co has used a mixture of equity and debt finance for its investments. However, it is about to make a new investment of $150 million in facilities to produce electric cars, which it proposes to finance solely by debt finance.

Project information
Amberle Co’s finance director has prepared estimates of the post-tax cash flows for the project, using a four-year time horizon, together with the realisable value at the end of four years:

Working capital of $6 million, not included in the estimates above and funded from retained earnings, will also be required immediately for the project, rising by the predicted rate of inflation for each year. Any remaining working capital will be released in full at the end of the project.

Predicted rates of inflation are as follows:

Issue costs of 3% of gross proceeds will be payable on the subsidised loan. No issue costs will be payable on the bank loan. Issue costs are not allowable for tax.

Financial information
Amberle Co pays tax at an annual rate of 30% on profits in the same year in which profits arise.
Amberle Co’s asset beta is currently estimated at 1·14. The current return on the market is estimated at 11%. The current risk-free rate is 4% per year.

Amberle Co’s chairman has noted that all of the company’s debt, including the new debt, will be repayable within three to five years. He is wondering whether Amberle Co needs to develop a longer term financing policy in broad terms and how flexible this policy should be.

Required:
(a) Calculate the adjusted present value (APV) for the project and conclude whether the project should be accepted or not. (15 marks)

2. Tippletine Co is based in Valliland. It is listed on Valliland’s stock exchange but only has a small number of shareholders. Its directors collectively own 45% of the equity share capital.

Tippletine Co’s growth has been based on the manufacture of household electrical goods. However, the directors have taken a strategic decision to diversify operations and to make a major investment in facilities for the manufacture of office equipment.

Details of investment
The new investment is being appraised over a four-year time horizon. Revenues from the new investment are uncertain and Tippletine Co’s finance director has prepared what she regards as cautious forecasts.

She predicts that it will generate $2 million operating cash flows before marketing costs in Year 1 and $14·5 million operating cash flows before marketing costs in Year 2, with operating cash flows rising by the expected levels of inflation in Years 3 and 4.

Marketing costs are predicted to be $9 million in Year 1 and $2 million in each of Years 2 to 4.

The new investment will require immediate expenditure on facilities of $30·6 million. Tax allowable depreciation will be available on the new investment at an annual rate of 25% reducing balance basis.

It can be assumed that there will either be a balancing allowance or charge in the final year of the appraisal. The finance director believes the facilities will remain viable after four years, and therefore a realisable value of $13·5 million can be assumed at the end of the appraisal period.

The new facilities will also require an immediate initial investment in working capital of $3 million. Working capital requirements will increase by the rate of inflation for the next three years and any working capital at the start of Year 4 will be assumed to be released at the end of the appraisal period.

Tippletine Co pays tax at an annual rate of 30%. Tax is payable with a year’s time delay. Any tax losses on the
investment can be assumed to be carried forward and written off against future profits from the investment.

Predicted inflation rates are as follows:

Financing the investment
Tippletine Co has been considering two choices for financing all of the $30·6 million needed for the initial investment in the facilities:

– A subsidised loan from a government loan scheme, with the loan repayable at the end of the four years. Issue costs of 4% of the gross finance would be payable. Interest would be payable at a rate of 30 basis points below the risk free rate of 2·5%.

In order to obtain the benefits of the loan scheme, Tippletine Co would have to fulfil various conditions, including locating the facilities in a remote part of Valliland where unemployment is high.

– Convertible loan notes, with the subscribers for the notes including some of Tippletine Co’s directors. The loan notes would have issue costs of 4% of the gross finance.

If not converted, the loan notes would be redeemed in six years’ time. Interest would be payable at 5%, which is Tippletine Co’s normal cost of borrowing. Conversion would take place at an effective price of $2·75 per share.

However, the loan note holders could enforce redemption at any time from the start of Year 3 if Tippletine Co’s share price fell below $1·50 per share. Tippletine Co’s current share price is $2·20 per share.

Issue costs for the subsidised loan and convertible loan notes would be paid out of available cash reserves. Issue costs are not allowable as a tax-deductible expense.

In initial discussions, the majority of the board favoured using the subsidised loan. The appraisal of the investment should be prepared on the basis that this method of finance will be used.

However, the chairman argued strongly in favour of the convertible loan notes, as, in his view, operating costs will be lower if Tippletine Co does not have to fulfil the conditions laid down by the government of Valliland.

Tippletine Co’s finance director is sceptical, however, about whether the other shareholders would approve the issue of convertible loan notes on the terms suggested. The directors will decide which method of finance to use at the next board meeting.

Other information
Humabuz Co is a large manufacturer of office equipment in Valliland. Humabuz Co’s geared cost of equity is estimated to be 10·5% and its pre-tax cost of debt to be 5·4%.

These estimates are based on a capital structure comprising $225 million 6% irredeemable bonds, trading at $107 per $100, and 125 million $1 equity shares, trading at $3·20 per share. Humabuz Co also pays tax at an annual rate of 30% on its taxable profits.

Required:
(a) Calculate the adjusted present value for the investment on the basis that it is financed by the subsidised loan and conclude whether the project should be accepted or not. Show all relevant calculations. (17 marks)

You have recently commenced working for Burung Co and are reviewing a four-year project which the company is considering for investment. The project is in a business activity which is very different from Burung Co’s current line of business.

The following net present value estimate has been made for the project:

Net present value is negative $1.65 million, and therefore the recommendation is that the project should not be accepted:
In calculating the net present value of the project, the following notes were made:

(i) Since the real cost of capital is used to discount cash flows, neither the sales revenue nor the direct project costs have been inflated. It is estimated that the inflation rate applicable to sales revenue is 8% per year and to the direct project costs is 4% per year.
(ii) The project will require an initial investment of $38 million. Of this, $16 million relates to plant and machinery, which is expected to be sold for $4 million when the project ceases, after taking any taxation and inflation impact into account.

(iii) Tax allowable depreciation is available on the plant and machinery at 50% in the first year, followed by 25% per year thereafter on a reducing balance basis. A balancing adjustment is available in the year the plant and machinery is sold. Burung Co pays 20% tax on its annual taxable profits. No tax allowable depreciation is available on the remaining investment assets and they will have a nil value at the end of the project.

(iv) Burung Co uses either a nominal cost of capital of 11% or a real cost of capital of 7% to discount all projects, given that the rate of inflation has been stable at 4% for a number of years.

(v) Interest is based on Burung Co’s normal borrowing rate of 150 basis points over the 10-year government yield rate.

(vi) At the beginning of each year, Burung Co will need to provide working capital of 20% of the anticipated sales revenue for the year. Any remaining working capital will be released at the end of the project.

(vii) Working capital and depreciation have not been taken into account in the net present value calculation above, since depreciation is not a cash flow and all the working capital is returned at the end of the project.

It is anticipated that the project will be financed entirely by debt, 60% of which will be obtained from a subsidised loan scheme run by the government, which lends money at a rate of 100 basis points below the 10-year government debt yield rate of 2•5%. Issue costs related to raising the finance are 2% of the gross finance required. The remaining 40% will be funded from Burung Co’s normal borrowing sources. It can be assumed that the debt capacity available to Burung Co is equal to the actual amount of debt finance raised for the project.

Burung Co has identified a company, Lintu Co, which operates in the same line of business as that of the project it is considering. Lintu Co is financed by 40 million shares trading at $3•20 each and $34 million debt trading at $94 per $100. Lintu Co’s equity beta is estimated at 1•5. The current yield on government treasury bills is 2% and it is estimated that the market risk premium is 8%. Lintu Co pays tax at an annual rate of 20%.
4Both Burung Co and Lintu Co pay tax in the same year as when profits are earned.

Required:

(a) Calculate the adjusted present value (APV) for the project, correcting any errors made in the net present value estimate above, and conclude whether the project should be accepted or not. Show all relevant calculations. (15 marks)

You have recently commenced working for Burung Co and are reviewing a four-year project which the company is considering for investment. The project is in a business activity which is very different from Burung Co’s current line of business.

The following net present value estimate has been made for the project:

Net present value is negative $1.65 million, and therefore the recommendation is that the project should not be accepted:
In calculating the net present value of the project, the following notes were made:
(i) Since the real cost of capital is used to discount cash flows, neither the sales revenue nor the direct project costs have been inflated. It is estimated that the inflation rate applicable to sales revenue is 8% per year and to the direct project costs is 4% per year.
(ii) The project will require an initial investment of $38 million. Of this, $16 million relates to plant and machinery, which is expected to be sold for $4 million when the project ceases, after taking any taxation and inflation impact into account.

(iii) Tax allowable depreciation is available on the plant and machinery at 50% in the first year, followed by 25% per year thereafter on a reducing balance basis. A balancing adjustment is available in the year the plant and machinery is sold. Burung Co pays 20% tax on its annual taxable profits. No tax allowable depreciation is available on the remaining investment assets and they will have a nil value at the end of the project.

(iv) Burung Co uses either a nominal cost of capital of 11% or a real cost of capital of 7% to discount all projects, given that the rate of inflation has been stable at 4% for a number of years.

(v) Interest is based on Burung Co’s normal borrowing rate of 150 basis points over the 10-year government yield rate.

(vi) At the beginning of each year, Burung Co will need to provide working capital of 20% of the anticipated sales revenue for the year. Any remaining working capital will be released at the end of the project.

(vii) Working capital and depreciation have not been taken into account in the net present value calculation above, since depreciation is not a cash flow and all the working capital is returned at the end of the project.

It is anticipated that the project will be financed entirely by debt, 60% of which will be obtained from a subsidised loan scheme run by the government, which lends money at a rate of 100 basis points below the 10-year government debt yield rate of 2•5%. Issue costs related to raising the finance are 2% of the gross finance required. The remaining 40% will be funded from Burung Co’s normal borrowing sources. It can be assumed that the debt capacity available to Burung Co is equal to the actual amount of debt finance raised for the project.

Burung Co has identified a company, Lintu Co, which operates in the same line of business as that of the project it is considering. Lintu Co is financed by 40 million shares trading at $3•20 each and $34 million debt trading at $94 per $100. Lintu Co’s equity beta is estimated at 1•5. The current yield on government treasury bills is 2% and it is estimated that the market risk premium is 8%. Lintu Co pays tax at an annual rate of 20%.
4Both Burung Co and Lintu Co pay tax in the same year as when profits are earned.

Required:

(b) Comment on the corrections made to the original net present value estimate and explain the APV approach taken in part (a), including any assumptions made. (10 marks) 25 marks)

Mlima Co is a private company involved in aluminium mining. About eight years ago, the company was bought out by its management and employees through a leveraged buyout (LBO). Due to high metal prices worldwide, the company has been growing successfully since the LBO.

However, because the company has significant debt borrowings with strict restrictive covenants and high interest levels, it has had to reject a number of profitable projects. The company has currently two bonds in issue, as follows:

A 16% secured bond with a nominal value of $80m, which is redeemable at par in five years. An early redemption option is available on this bond, giving Mlima Co the option to redeem the bond at par immediately if it wants to; and A 13% unsecured bond with a nominal value of $40m, which is redeemable at par in ten years.

Mlima Co’s Board of Directors (BoD) has been exploring the idea of redeeming both bonds to provide it with more flexibility when making future investment decisions. To do so, the BoD has decided to consider a public listing of the company on a major stock exchange. It is intended that a total of 100 million shares will be issued in the newly-listed company.

From the total shares, 20% will be sold to the public, 10% will be offered to the holders of the unsecured bond in exchange for redeeming the bond through an equity-for-debt swap, and the remaining 70% of the equity will remain in the hands of the current owners. The secured bond would be paid out of the funds raised from the listing.

The details of the possible listing and the distribution of equity were published in national newspapers recently. As a result, potential investors suggested that due to the small proportion of shares offered to the public and for other reasons, the shares should be offered at a substantial discount of as much as 20% below the expected share price on the day of the listing. 

Mlima Co, financial information

It is expected that after the listing, deployment of new strategies and greater financial flexibility will boost Mlima Co’s future sales revenue and, for the next four years, the annual growth rate will be 120% of the previous two years’ average growth rate.

After the four years, the annual growth rate of the free cash flows to the company will be 3•5%, for the foreseeable future. Operating profit margins are expected to be maintained in the future.

Although it can be assumed that the current tax-allowable depreciation is equivalent to the amount of investment needed to maintain the current level of operations, the company will require an additional investment in assets of 30c per $1 increase in sales revenue for the next four years.

Once listed, Mlima Co will be able to borrow future debt at an interest rate of 7%, which is only 3% higher than the risk-free rate of return. It has no plans to raise any new debt after listing, but any future debt will carry considerably fewer restrictive covenants. However, these plans do not take into consideration the Bahari project (see below).

Bahari Project

Bahari is a small country with agriculture as its main economic activity. A recent geological survey concluded that there may be a rich deposit of copper available to be mined in the north-east of the country.

This area is currently occupied by subsistence farmers, who would have to be relocated to other parts of the country. When the results of the survey were announced, some farmers protested that the proposed new farmland where they would be moved to was less fertile and that their communities were being broken up.

However, the protesters were intimidated and violently put down by the government, and the state-controlled media stopped reporting about them. Soon afterwards, their protests were ignored and forgotten.

In a meeting between the Bahari government and Mlima Co’s BoD, the Bahari government offered Mlima Co exclusive rights to mine the copper. It is expected that there are enough deposits to last at least 15 years.

Initial estimates suggest that the project will generate free cash flows of $4 million in the first year, rising by 100% per year in each of the next two years, and then by 15% in each of the two years after that. The free cash flows are then expected to stabilise at the year-five level for the remaining 10 years.

The cost of the project, payable at the start, is expected to be $150 million, comprising machinery, working capital and the mining rights fee payable to the Bahari government. None of these costs is expected to be recoverable at the end of the project’s 15-year life.

The Bahari government has offered Mlima Co a subsidised loan over 15 years for the full $150 million at an interest rate of 3% instead of Mlima Co’s normal borrowing rate of 7%. The interest payable is allowable for taxation purposes.

It can be assumed that Mlima Co’s business risk is not expected to change as a result of undertaking the Bahari project.

At the conclusion of the meeting between the Bahari government and Mlima Co’s BoD, the president of Bahari commented that working together would be like old times when he and Mlima Co’s chief executive officer (CEO) used to run a business together.

Other Information

Mlima Co’s closest competitor is Ziwa Co, a listed company which mines metals worldwide. Mlima Co’s directors are of the opinion that after listing Mlima Co’s cost of capital should be based on Ziwa Co’s ungeared cost of equity. Ziwa Co’s cost of capital is estimated at 9•4%, its geared cost of equity is estimated at 16•83% and its pre-tax cost of debt is estimated at 4•76%.

These costs are based on a capital structure comprising of 200 million shares, trading at $7 each, and $1,700 million 5% irredeemable bonds, trading at $105 per $100. Both Ziwa Co and Mlima Co pay tax at an annual rate of 25% on their taxable profits.

It can be assumed that all cash flows will be in $ instead of the Bahari currency and therefore Mlima Co does not have to take account of any foreign exchange exposure from this venture.

Required:

Prepare a report for the Board of Directors (BoD) of Mlima Co that:

(ii) Estimates Mlima Co’s value without undertaking the Bahari project and then with the Bahari project. The valuations should use the free cash flow methodology and the cost of capital calculated in part (i). Include relevant calculations; (14 marks)

(iv) Advises the BoD on the listing and the possible share price range, if a total of 100 million shares are issued. The advice should also include: 
– A discussion of the assumptions made in estimating the share price range; 
– In addition to the reasons mentioned in the scenario above, a brief explanation of other possible reasons for changing its status from a private company to a listed one; and
– An assessment of the possible reasons for issuing the share price at a discount for the initial listing;
(12 marks)

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

Tramont Co is a listed company based in the USA and manufactures electronic devices. One of its devices, the X-IT, is produced exclusively for the American market. Tramont Co is considering ceasing the production of the X-IT gradually over a period of four years because it needs the manufacturing facilities used to make the X-IT for other products.

The government of Gamala, a country based in south-east Asia, is keen to develop its manufacturing industry and has offered Tramont Co first rights to produce the X-IT in Gamala and sell it to the USA market for a period of four years.

At the end of the four-year period, the full production rights will be sold to a government-backed company for Gamalan Rupiahs (GR) 450 million after tax (this amount is not subject to inflationary increases). Tramont Co has to decide whether to continue production of the X-IT in the USA for the next four years or to move the production to Gamala immediately.

Currently each X-IT unit sold makes a unit contribution of $20. This unit contribution is not expected to be subject to any inflationary increase in the next four years. Next year’s production and sales estimated at 40,000 units will fall by 20% each year for the following three years. It is anticipated that after four years the production of the X-IT will stop.

It is expected that the financial impact of the gradual closure over the four years will be cost neutral (the revenue from sale of assets will equal the closure costs). If production is stopped immediately, the excess assets would be sold for $2•3 million and the costs of closure, including redundancy costs of excess labour, would be $1•7 million.

The following information relates to the production of the X-IT moving to Gamala.
The Gamalan project will require an initial investment of GR 230 million, to pay for the cost of land and buildings (GR 150 million) and machinery (GR 80 million). The cost of machinery is tax allowable and will be depreciated on a straight-line basis over the next four years, at the end of which it will have a negligible value.

Tramont Co will also need GR 40 million for working capital immediately. It is expected that the working capital requirement will increase in line with the annual inflation rate in Gamala. When the project is sold, the working capital will not form part of the sale price and will be released back to Tramont Co.

Production and sales of the device are expected to be 12,000 units in the first year, rising to 22,000 units, 47,000 units and 60,000 units in the next three years respectively.

The following revenues and costs apply to the first year of operation:
– Each unit will be sold for $70;
– The variable cost per unit comprising of locally sourced materials and labour will be GR 1,350, and;
– In addition to the variable cost above, each unit will require a component bought from Tramont Co for $7, on which Tramont Co makes $4 contribution per unit;
– Total fixed costs for the first year will be GR 30 million.

The costs are expected to increase by their countries’ respective rates of inflation, but the selling price will remain fixed at $70 per unit for the four-year period.

The annual corporation tax rate in Gamala is 20% and Tramont Co currently pays corporation tax at a rate of 30% per year. Both countries’ corporation taxes are payable in the year that the tax liability arises.

A bi-lateral tax treaty exists between the USA and Gamala, which permits offset of overseas tax against any USA tax liability on overseas earnings. The USA and Gamalan tax authorities allow losses to be carried forward and written off against future profits for taxation purposes.

Tramont Co has decided to finance the project by borrowing the funds required in Gamala. The commercial borrowing rate is 13% but the Gamalan government has offered Tramont Co a 6% subsidised loan for the entire amount of the initial funds required.

The Gamalan government has agreed that it will not ask for the loan to be repaid as long as Tramont Co fulfils its contract to undertake the project for the four years. Tramont Co can borrow dollar funds at an interest rate of 5%.

Tramont Co’s financing consists of 25 million shares currently trading at $2•40 each and $40 million 7% bonds trading at $1,428 per $1,000. Tramont Co’s quoted beta is 1•17. The current risk free rate of return is estimated at 3% and the market risk premium is 6%.

Due to the nature of the project, it is estimated that the beta applicable to the project if it is all-equity financed will be 0•4 more than the current all-equity financed beta of Tramont Co. If the Gamalan project is undertaken, the cost of capital applicable to the cash flows in the USA is expected to be 7%.

The spot exchange rate between the dollar and the Gamalan Rupiah is GR 55 per $1. The annual inflation rates are currently 3% in the USA and 9% in Gamala. It can be assumed that these inflation rates will not change for the foreseeable future. All net cash flows arising from the project will be remitted back to Tramont Co at the end of each year.

There are two main political parties in Gamala: the Gamala Liberal (GL) Party and the Gamala Republican (GR) Party. Gamala is currently governed by the GL Party but general elections are due to be held soon.

If the GR Party wins the election, it promises to increase taxes of international companies operating in Gamala and review any commercial benefits given to these businesses by the previous government.

Required:

Prepare a report for the Board of Directors of Tramont Co that evaluates whether or not Tramont Co should undertake the project to produce the X-IT in Gamala and cease its production in the USA immediately. In the evaluation, include all relevant calculations in the form of a financial assessment and explain any assumptions made;

Note: it is suggested that the financial assessment should be based on present value of the operating cash flows from the Gamalan project, discounted by an appropriate all-equity rate, and adjusted by the present value of all other relevant cash flows. (27 marks)

Tramont Co is a listed company based in the USA and manufactures electronic devices. One of its devices, the X-IT, is produced exclusively for the American market. Tramont Co is considering ceasing the production of the X-IT gradually over a period of four years because it needs the manufacturing facilities used to make the X-IT for other products.

The government of Gamala, a country based in south-east Asia, is keen to develop its manufacturing industry and has offered Tramont Co first rights to produce the X-IT in Gamala and sell it to the USA market for a period of four years.

At the end of the four-year period, the full production rights will be sold to a government-backed company for Gamalan Rupiahs (GR) 450 million after tax (this amount is not subject to inflationary increases). Tramont Co has to decide whether to continue production of the X-IT in the USA for the next four years or to move the production to Gamala immediately.

Currently each X-IT unit sold makes a unit contribution of $20. This unit contribution is not expected to be subject to any inflationary increase in the next four years. Next year’s production and sales estimated at 40,000 units will fall by 20% each year for the following three years. It is anticipated that after four years the production of the X-IT will stop.

It is expected that the financial impact of the gradual closure over the four years will be cost neutral (the revenue from sale of assets will equal the closure costs). If production is stopped immediately, the excess assets would be sold for $2•3 million and the costs of closure, including redundancy costs of excess labour, would be $1•7 million.

The following information relates to the production of the X-IT moving to Gamala.
The Gamalan project will require an initial investment of GR 230 million, to pay for the cost of land and buildings (GR 150 million) and machinery (GR 80 million). The cost of machinery is tax allowable and will be depreciated on a straight-line basis over the next four years, at the end of which it will have a negligible value.

Tramont Co will also need GR 40 million for working capital immediately. It is expected that the working capital requirement will increase in line with the annual inflation rate in Gamala. When the project is sold, the working capital will not form part of the sale price and will be released back to Tramont Co.

Production and sales of the device are expected to be 12,000 units in the first year, rising to 22,000 units, 47,000 units and 60,000 units in the next three years respectively.

The following revenues and costs apply to the first year of operation:
– Each unit will be sold for $70;
– The variable cost per unit comprising of locally sourced materials and labour will be GR 1,350, and;
– In addition to the variable cost above, each unit will require a component bought from Tramont Co for $7, on which Tramont Co makes $4 contribution per unit;
– Total fixed costs for the first year will be GR 30 million.

The costs are expected to increase by their countries’ respective rates of inflation, but the selling price will remain fixed at $70 per unit for the four-year period.

The annual corporation tax rate in Gamala is 20% and Tramont Co currently pays corporation tax at a rate of 30% per year. Both countries’ corporation taxes are payable in the year that the tax liability arises.

A bi-lateral tax treaty exists between the USA and Gamala, which permits offset of overseas tax against any USA tax liability on overseas earnings. The USA and Gamalan tax authorities allow losses to be carried forward and written off against future profits for taxation purposes.

Tramont Co has decided to finance the project by borrowing the funds required in Gamala. The commercial borrowing rate is 13% but the Gamalan government has offered Tramont Co a 6% subsidised loan for the entire amount of the initial funds required.

The Gamalan government has agreed that it will not ask for the loan to be repaid as long as Tramont Co fulfils its contract to undertake the project for the four years. Tramont Co can borrow dollar funds at an interest rate of 5%.

Tramont Co’s financing consists of 25 million shares currently trading at $2•40 each and $40 million 7% bonds trading at $1,428 per $1,000. Tramont Co’s quoted beta is 1•17. The current risk free rate of return is estimated at 3% and the market risk premium is 6%.

Due to the nature of the project, it is estimated that the beta applicable to the project if it is all-equity financed will be 0•4 more than the current all-equity financed beta of Tramont Co. If the Gamalan project is undertaken, the cost of capital applicable to the cash flows in the USA is expected to be 7%.

The spot exchange rate between the dollar and the Gamalan Rupiah is GR 55 per $1. The annual inflation rates are currently 3% in the USA and 9% in Gamala. It can be assumed that these inflation rates will not change for the foreseeable future. All net cash flows arising from the project will be remitted back to Tramont Co at the end of each year.

There are two main political parties in Gamala: the Gamala Liberal (GL) Party and the Gamala Republican (GR) Party. Gamala is currently governed by the GL Party but general elections are due to be held soon.

If the GR Party wins the election, it promises to increase taxes of international companies operating in Gamala and review any commercial benefits given to these businesses by the previous government.

Required:

Prepare a report for the Board of Directors of Tramont Co that discusses the potential change in government and other business factors that Tramont Co should consider before making a final decision. (8 marks)

Professional marks will be awarded in question 1 for the format, structure and presentation of the answer. (4 marks)