question archive British Gas Group has been facing many disputes such as execution problems and political issues in Brazil and Egypt
British Gas Group has been facing many disputes such as execution problems and political issues in Brazil and Egypt
Subject:FinancePrice: Bought3
British Gas Group has been facing many disputes such as execution problems and political issues in Brazil and Egypt. Those events were creating an attractive entry point for long-term investors. A company such as a size of Shell and its financial health is in a great position to take a long-term view to potential acquisition One of Shell subcontractor, MaxPower Ltd, its headquarter is based in the UK. The business risk is believed to be relatively high for MaxPower because it is listed in Malaysia that supplies to the major upstream oil exploration companies in Malaysia. Before the substantial decrease of the oil price in 2015, MaxPower was able to record very healthy profits year after year. Believing that the oil price would never fall below $100 a barrel, the top management decided to raise substantial amount of money for expansion from the international bond market, with the debt denominated in the U.S. Dollars. However, with the substantial decrease of the oil price starting in 2015, MaxPower faced a very challenging external environment. In addition, more than 20 percent depreciation of the Malaysian currency against other major currencies, including the U.S. Dollars that occurred in 2015 complicated the future of the company. Before end of this year, the company has ordered a newly developed drilling machine from a US firm for £5.6m, payable in 3 months. The following information on the rate of exchange has been provided: £/5 The spot rate 1.3512 - 1.3518 Three months forward 1.3974 - 1.4001 The rates for borrowing and depositing funds are as follows: UK bank US bank Annual borrowing rate 4.4% 6.0% Annual deposit rate 1.5% 2.8% MaxPower Ltd has also been offered the option of paying now and receiving a 10% discount on the £5.6m Required a) Discuss the sources of finance that would be available to RDSB if Shell intends to acquire British Gas Group (4 marks) b) Using the information provided above, evaluate which of the following is the most cost-effective method money market II) forward market II) lead payment (9 marks) c) Based on the information above, critically evaluate the financial risk of MaxPower. (3 marks) d) Discuss four techniques that MaxPower Ltd might use to hedge against the foreign exchange risk involved in foreign trade. (4 marks)
