BUSF_A01.qxd

Appendix 4 • Suggested answers to selected problem questions

Working capital

20X1 20X2 20X3

£ 000 £ 000 £ 000

Tracker sales revenues 2,160 2,208 1,104

Lost Repro revenue (540) (552) (276)

Net increase in revenue 1,620 1,656 828

15% thereof 243 248 124

7.1

(a)Specific risk factors might include:

l the possible loss of business to the Channel Tunnel;

l decline in trade between the UK and western Europe;

l a loss of interest among UK residents in taking holidays in western Europe; and

l bad publicity arising from an accident involving one of the business’s vessels.

(b)Systematic risk factors might include:

l levels of interest rates;

l fuel prices; and

l levels of demand in the economy.****

7.5 Court plc

(a)

Year rm rm−Dm (rm−Dm)^2 ri ri−Di (ri−Dm)(ri−Di)

1 0.13 0.07 0.0049 0.19 0.12 0.0084

2 (0.07) (0.13) 0.0169 (0.08) (0.15) 0.0195

3 (0.13) (0.19) 0.0361 (0.12) (0.19) 0.0361

4 0.04 (0.02) 0.0004 0.03 (0.04) 0.0008

5 0.08 0.02 0.0004 0.08 0.01 0.0002

6 0.10 0.04 0.0016 0.17 0.10 0.0040

7 0.15 0.09 0.0081 0.14 0.07 0.0063

8 0.16 0.10 0.0100 0.14 0.07 0.0070

9 0.16 0.10 0.0100 0.14 0.07 0.0070

10 (0.02) (0.08) 0.0064 0.01 (0.06) 0.0048

∑rm= 0.60 ∑(rm−Dm)^2 = 0.0948 0.70 =∑ri 0.0941 =

Dm= D ==∑ri ∑(rm−Dm)(ri−Di)

= 0.06 =0.07

Var(rm) =0.0095

Cov(ri, rm) ===0.0094

β===1.0

(b) Since Court’s beta is 1.0, irrespective of the risk-free rate, if the expected return from

equities generally is 12 per cent, then the expected return from Court will also be

12 per cent.

0.0094

0.0095

Cov(ri, rm)

Var(rm)

0.0941

10

∑(rm– Dm)(ri−Di)

10

0.0948

10

0.70

0.10

0.60

0.10

Chapter 7

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