Professional Level

SUGGESTED ANSWERS
Nov-Dec 2020

Financial Management

1. Question:

(a) Define Optimum Capital Structure. “MM hypothesis is based on some unrealistic assumptions”- do you agree
and what are those assumptions?
(b) ABC Ltd, a producer of turbine generators, is in this situation: EBIT = Tk 4 million; tax rate = T= 35%; debt
outstanding D = Tk 2 million; Kd = 10%; Ks= 15%; shares of stock outstanding No = 600,000; and book value per
share = Tk 10. Since ABC’s product market is stable and the company expects no growth, all earnings are paid out
as dividends. The debt consists of perpetual bonds.
Requirements:
i) What are ABC’s earnings per share (EPS) and its price per share (Po)?
ii) What is ABC’s weighted average cost of capital (WACC)?
iii) ABC can increase its debt by TK 8 million, to a total of TK 10 million, using the new debt to buy back
and retire some of its shares at the current price. Its interest rate on debt will be 12% (it will have to
call and refund the old debt), and its cost of equity will rise from 15% to 17%. EBIT will remain
constant. Should ABC change its capital structure?
iv) If ABC did not have to refund the Tk 2 million of old debt, how would this affect things? Assume that
the new and the still outstanding debt are equally risky, with Kd = 12%, but that the coupon rate on
the old debt is 10%.
v) What are ABC’s TIE coverage ratio under the original situation and under the conditions in part (iii)
of the above?
(c) Assume that you own 100 shares of S Limited, a small software development firm. When you read the Financial
Express this morning, S Limited shares were selling at Tk 50. There are 10,000 shares outstanding, with most
of those being held by small investors such as yourself. On the way to work, you hear on the radio that a group
of outside investors have managed to acquire 20% of the firm and are attempting a hostile takeover. They are
offering Tk 75 a share for any and all outstanding shares. The analyst on the radio goes on to state that, due to
the bidder’s expertise at managing similar companies, the equity in the firm is expected to be worth Tk 1 million
if their bid is successful. Assume that there will be no tax effects if you sell your shares.
Requirements:
i) Should you sell your shares to the bidder?
ii) What will happen if everyone makes the same sell/keep decision you do?
iii) What does this imply about the bid price of successful takeover attempt?
(d) As CEO of a major corporation, you must decide on how much you can afford to borrow. You currently have
10 million shares outstanding, and the market price per share is Tk 50. You also currently have about Tk 200
million in debt outstanding (market value). You are rated as a BBB corporation now.
 Your stock has a beta of 1.5 and the Treasury bond rate is 8%.
 Your marginal tax rate is 46%
 You estimate that your rating will change to a B if you borrow Tk 100 million. The BBB rate now is
11%. The B rate is 12.5%.
Requirements:
i) What is your best estimate of the weighted average cost of capital with and without the Tk 100 million
in borrowing?
ii) If you do borrow the Tk 100 million, what will be the price per share after the borrowing?
iii) Assume that you have a project that requires an investment of Tk 100 million. It has expected before-
tax revenues of Tk 50 million and costs of Tk 30 million a year in perpetuity. Is this a desirable project
by your criteria? Why or why not?
iv) Does it make a difference in your decision if you are told that the cash flows from the project in (iii)
are certain?

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Answer to the Question No: 1(a)

Optimum capital structure
The optimal capital structure of a firm is the best mix of debt and equity financing that maximizes a company's
market value while minimizing its cost of capital. Thus, companies have to find the optimal point at which the
marginal benefit of debt equals the marginal cost It is useful to analyse the situation and attempt to determine
the optimal structure; but in practice it is difficult to do this with a great deal of precision. As a result, in practice,
many managers think of the optimal capital structure more as a range rather than as a precise number. Other
firms study the situation; reach a conclusion as to the optimal structure; and then set a target capital structure.
MM study was based on some unrealistic assumptions and those are listed below:
 There are no brokerage costs
 There are no taxes
 There are no bankruptcy costs
 Investors can borrow at the same rate as corporations
 All investors have the same information as management about the firm’s future investment
opportunities
 EBIT is not affected using debt

Even though some of these assumptions are obviously unrealistic, MM’s irrelevance result is extremely
important. By indicating the conditions under which capital structure is irrelevant, MM also provided us with
clues about what is required for capital structure to be relevant and hence to affect a firm’s value.

Answer to the Question No: 1(b)

i)
BDT
EBIT 4,000,000
Interest ( Tk 2,000,000 X 0.10) 200,000
Earnings before Taxes (EBT) 3,800,000
Taxes (35%) 1,330,000
Net Income 2,470,000

EPS = Tk 2,470,000/600,000 = TK 4.12

Po = Tk 4.12/0.15 = Tk 27.47
ii)
Equity = 600,000 X Tk 10 = Tk 6,000,000
Debt = Tk 2,000,000
Total capital = Tk 8,000,000
WACC = WdKd (1-T) + WcKs
= (2/8)(10%)(1-0.35) + (6/8) (15%)
= 1.63% + 11.25%
= 12.88%

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iii)
EBIT 4,000,000
Interest (Tk 8,000,000 x 0.12 960,000
Earnings before Tax (EBT) 3,040,000
Taxes (35%) 1,064,000
Net Income 1,976,000

New Debt:
Old Debt 2,000,000
Additional 8,000,000
Less repayment of old debt (2,000,000)
Net Debt 8,000,000

No of shares:
Net proceeds from raising debt 6,000,000
No of shares:(6,000,000/27.47) 218,420
New outstanding shares (600,000 - 218,420) 381,580
New EPS (1,976,000 / 381,580) 5.18
New Price per share (5.18 / 0.17) 30.47

As the new share price of Tk 30.47 is higher than the earlier price of Tk 27.47, ABC should change
its capital structure

iv) If the old debt is not required to be refunded, the position is as follows:

EBIT 4,000,000
Interest (Tk 8,000,000 x 0.12 + 2,000,000 x 0.10) 1,160,000
Earnings before Tax (EBT) 2,840,000
Taxes (35%) 994,000
Net Income 1,846,000

No of shares:
Net proceeds from raising debt 8,000,000
No of shares:(8,000,000/27.47) 291,227
New outstanding shares (600,000 - 291,227) 308,773
New EPS (1,846,000 / 308,773) 5.98
New Price per share (5.98 / 0.17) 35.18

This is a better capital structure compared to the situation where the old debt needs to be refunded
since the new share price of BDT 35.18 is higher than the earlier figures of Tk 30.47 and Tk 27.47.

In the first case, in which debt had to be refunded, the bondholders were compensated for the increased
risk of the higher debt position. In the second case, the old bondholders were not compensated; their
10% coupon perpetual bonds would now be worth:

Tk 100/0.12 = Tk 833.33. Or, Tk 1,666,667 in total, down from the old Tk 2mn or a loss of TK
333,333. The stockholders would have a gain of: (Tk 35.18 – Tk 30.47) x 308,773 = Tk 1,454,321

The gain would be, of course, at the expense of the old bondholders. (There is no reason to think that
bondholders’ losses would exactly offset stockholders’ gains.)
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v)
TIE = EBIT/I
Original TIE = Tk 4,000,000/Tk 200,000 = 20 times
New TIE = Tk 4,000,000/Tk 960,000 = 4.17 times

Answer to the Question No: 1(c)

i) You will only sell your shares if you feel the takeover attempt will fail. If the attempt succeeds, each
share will be worth Tk 100, so you won’t be willing to sell for Tk 75. If it fails, each share will only be
worth the current market price of Tk 50

ii) This implies that tender offers will only succeed if everyone thinks they will fail, but if everyone thinks
they will fail, then they will succeed but everyone should realize they will succeed and hence, hang
on to their shares, etc.

iii) The underlying reason for the paradox above is that the bid price is lower than the post-takeover value
per share. Normally, successful bid must be set above the expected value per share, so that the
shareholders who sell profit more than shareholders who do not. That is why enough shareholders will
tender their shares. In fact, all shareholders will want to tender their shares, but in order for the bidders
to make money on the deal, they also set a restriction on how many shares they will buy.
Answer to the Question No: 1(d)
i) The question does not specify the Market Return. Let us assume the Market Return is 12% in which
case the risk premium is 4% (12% -8%)

Ke = Rf + Market Premium x Beta

8% + 4 x1.5 =14%
Market Value of Debt 200 million
Market Value of Equity 500 million
Total Market Value 700 million
Kd = 0.11 x (1 – 0.46) = 0.0594

WACC without additional borrowing = (200 x 0.0594 + 500 x 0.14) / 700 = 11.70%

Market Value of Debt 300 million

Market Value of Equity 500 million
Total Market Value 700 million
Kd = 0.125 x (1 – 0.46) = 0.0675

WACC with additional borrowing = (300 x 0.0675 + 500 x 0.14) / 800 = 11.28%
ii) The data in the question is incomplete to estimate the new market price per share
iii) The data is incomplete. However, if we assume a WACC of 11%, the cash flow till perpetuity is 20 /
0.11 = 182 million which is more than the initial investment. The project therefore becomes
acceptable.
iv) The decision will remain unchanged.

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2. Question:

(a) Why do options typically sell at prices higher than their exercise values? How can Swaps be used to reduce
the risks associated with debt contracts?
(b) Safwan is considering an investment in Modern Communications, whose stock currently sells for Tk 60. A
put option on Modern’s stock, with an exercise price of Tk 55, has a market value of Tk 3.06. Meanwhile, a
call option on the stock with the same exercise price and time to maturity has a market value for Tk 9.29. The
market believes that at the expiration of the options the stock price will be either Tk 70 or Tk 50, with equal
probability.
Requirements:
i) What are the premiums associated with the put options and the call option?
ii) If Modern’s stock price increases to Tk 70, what would be the return to an investor who bought a
share of the stock? If the investor bought a call option on the stock? If the investor bought a put
option on the stock?
iii) If Modern’s stock price decreases to Tk 50, what would be the return to an investor who bought a
share of the stock? If the investor bought a call option on the stock? If the investor bought a put
option on the stock?
iv) If Safwan buys 0.6 shares of Modern Communications and sells one call option on the stock, has he
created a riskless hedged investment? What is the total value of his portfolio under each scenario?
v) If Safwan buys 0.75 shares of Modern Communications and sells one call option on the stock, has
he created a riskless hedged investment? What is the total value of his portfolio under each scenario?

Answer to the Question No: 2(a)

The market value of an option is typically higher than its exercise value due to the speculative nature of the
investment. Options allow investors to gain a high degree of personal leverage when buying securities. The
option allows the investor to limit his or her loss but amplify his or her return. The exact amount this protection
is worth is the premium over the exercise value.

Swaps allow firms to reduce their financial risk by exchanging their debt for another party’s debt, usually
because the parties prefer the other’s debt contract terms. There are several ways in which swaps reduce risk.
Currency swaps, where firms exchange debt obligations denominated in different currencies, can eliminate the
exchange rate risk created when currency must first be converted to another currency before making scheduled
debt payments. Interest rate swaps, where counterparties trade fixed-rate debt for floating-rate debt, can reduce
risk for both parties based on their individual views concerning future interest rates.

Answer to the Question No: 2(b)

i) The current exercise value of the call option is Max (Tk 60-Tk 55) = Tk 5. Since the market value of
the call option is Tk 9.29, the premium associated with the call is Tk 4.29. The current exercise value
of the put option is Max (Tk 55-Tk 60) = Tk 0. Since the market value of the option is Tk 3.06, the
premium associated with the put option is Tk 3.06.

ii) Remember that the options will be exercised only if they yield a positive pay off. In this case, the put
option will not be exercised. In addition, the initial investments for the options will be the market
values of the options. The returns under each of the scenarios are summarized below:

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Investment Returns Results

Own stock ((Tk 70 - Tk 60)/Tk 60) 16.67%
Buy call option ((Tk 70 - Tk 55)/Tk 9.29)-1 61.46%
Buy put option ((Tk 0)/ - Tk 3.06)-1 -100%

iii) In this case, the call option will not be exercised. The returns under each of the scenarios are
summarized below:
Investment Returns Results
Own stock ((Tk 50 - Tk 60)/Tk 60) -16.67%
Buy call option ((Tk 0)/ Tk 9.29)-1 -100%
Buy put option ((Tk 55 - Tk 50)/Tk 3.06)-1 63.40%

iv) Recall, that the stock price is expected to be either Tk 50 or Tk 70, with equal probability. If Safwan
buys 0.6 shares of stock and sells one call option, his expected payoffs are:

Ending price X 0.60 = Ending stock value Ending option value

Tk 50 X 0.60 = Tk 30 Tk 0
Tk 70 X 0.60 = Tk 42 Tk 15

Safwan’s investment strategy would yield a payoff of Tk 30 – Tk 0 = Tk 30, if the ending stock price
is Tk 50. His strategy has a payoff of Tk 42- Tk 15 = Tk 27, if the ending stock price is TK 70. This
is not a riskless hedged portfolio.

v) Recall, that the stock price is expected to be either Tk 50 or Tk 70, with equal probability. If Safwan
buys 0.75 shares of stock and sells one call option, his expected payoffs are:

Ending price X 0.75 = Ending stock value Ending option value

Tk 50 X 0.75 = Tk 37.50 Tk 0
Tk 70 X 0.75 = Tk 52.50 Tk 15

Safwan’s investment strategy would yield a payoff of Tk 37.50 – Tk 0 = Tk 37.50, if the ending stock
price is Tk 50. His strategy has a payoff of Tk 52.50- Tk 15 = Tk 37.50, if the ending stock price is
TK 70. Since his payoff is guaranteed to be Tk 37.50, regardless of the ending stock price, this is a
riskless hedged portfolio.

3. Question:

(a) SC has invested in a portfolio of Bangladesh FTSE100 shares which is worth BDT 18.225 million on 1 July
2020. The spot value of the FTSE100 index on that date is 6,750.

SC’s board wishes to explore the implications of hedging the company against a potential fall in share prices
in the next month. Accordingly, it is considering the use of traded FTSE100 index options.

The following information has been gathered:

FTSE 100 INDEX OPTION (BDT 10 per full index point)

Exercise Price 6,650 6,700 6,750 6,800 6,850

Call Put Call Put Call Put Call Put Call Put
August 215 95 184 115 154 135 125 159 105 191
September 272 131 241 152 217 176 186 197 162 221

Assume that the board decides to use options to protect the current value of the portfolio in one month’s time.

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Requirements: Explain, with supporting workings, what will happen in one month’s time if:
i) the portfolio’s value falls to BDT 17.955 million and the FTSE100 index falls to 6,650
ii) the portfolio’s value rises to BDT 18.360 million and the FTSE100 index rises to 6,800

(b) As an alternative to hedging the BDT 18.225 million portfolio with options, SC’s board is considering using
FTSE100 stock index futures. At 1 July 2020 the quote for FTSE100 stock index futures in one month is 6,720
and the face value of a FTSE100 index contract is BDT 10 per index point.
Requirement: Calculate the outcome of this hedge if in one month’s time the portfolio’s value falls to BDT
17.955 million and the FTSE100 stock index futures contract falls to 6,630. Comment on
whether this hedge has been effective and identify the reasons for any inefficiency which
may arise when using futures contracts.

Answer to the Question No: 3(a)

SC should buy August put option contracts as follows: BDT 18.225m / (6750 x BDT 10) = 270 contracts.
Portfolio & Index falls Portfolio & Index falls
BDT BDT
Portfolio value at 1 August 17,955,000 18,360,000
Option exercised
(6750 - 6650) X 270 X 10 270,000 -
18,225,000 18,360,000
Cost of option (135 X 270 X 10) (364,500) (364,500)
17,860,500 17,995,500
Current value of portfolio 18,225,000 18,225,000
Decrease in portfolio value 364,500 229,500

Answer to the Question No: 3(b)

SC should sell futures BDT 18.225m / (6720 x 10= 272 contracts rounded up

Portfolio value at 1 August 17,955,000

Gain on future ([6720 - 6630] x 272 x 10) 244,800
18,199,800
Current value of portfolio 18,225,000
Decrease in portfolio value 25,200

4. Question:
Best Hotels Limited is a listed company which owns a chain of hotels around the country. The management of
Best Hotels are investigating a BDT 195 million potential investment in the real estate business which would be
a diversification from its mainstream business. The investment would involve the construction and management
of a Shopping Mall. An initial investment payment of BDT 120 million is payable immediately and the reminder
upon completion of the Shopping Mall at the end of year one. The operations would commence immediately after
completion of the Mall. The Shopping Mall is expected to operate for a period of 13 years after which a major
investment would be required. The residual value at the end of its life cycle (after 14 years from now) is projected
to be BDT 45 million after tax. The rental charges would be based on the floor area.

Type of floor area Number of shops Monthly rent per shop

Medium 40 BDT 65,000
Large 30 BDT 180,000

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It’s expected that during the first year of operation the shop occupancy will be 60% for Medium and 40% for
Large. During the subsequent years, the shop occupancy would be at full capacity. Annual operating costs are
expected to be 45% of the annual revenue.

The corporate tax rate is 37.5% per year.

Requirements:
(a) Evaluate the proposed investment in the Real Estate Business using the Net Present Value method. Assume
the cost of capital is 13% per year.
(b) Assuming the role of a Financial Consultant, write a brief report to the management of Best Hotels Ltd,
discussing the non-financial factors that should be considered before the decision to diversify into the real
estate business is made.

Answer to the Question No: 4(a)

Net present value
Year 0 1 2 3 to 14 14
BDT’m BDT’m BDT’m BDT’m BDT’m BDT’m
Investment cost (120) (75) - - 45
Revenue (W.1) - - 44.64 96 -
Operational costs - - (20.09) (43.2) -
@45%
Cash flow (120) (75) 24.55 52.8 45
before tax
Taxation @37.5 - - (9.21) (19.8) -
%
Net cash flow (120) (75) 15.34 33 45
Discount @13% 1.000 0.885 0.783 4.634 0.181
Present values (120) (66.38) 12.02 152.92 8.15
NPV (13.29)

Based on the NPV computation, the proposed investment should not be undertaken because it gives a
negative NPV of (BDT 13.29m)

Workings:

1. Revenue Year one of operations

Medium = 40 x 60% x BDT 65, 000 x 12 = BDT 18, 720,000

Large = 30 x 40% x BDT 180, 000 x 12 = BDT 25, 920,000
Total BDT 44, 640,000

Revenue after Year one of operations

Medium = 40 x BDT 65, 000 x 12 = BDT 31, 200,000
Large = 30 x BDT 180, 000 x 12 = BDT 64, 800, 000
Total BDT 96, 000,000

2. Annuity under NPV (13%)

Year 3 to 14 Annuity value at Y2 = 5.918

Present Value Factor of Y2 Value = 0.783
PV of Revenue for Year 3 to 14 = 4.634

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Answer to the Question No: 4(b)

To : Best Hotel Management

From : Financial Consultant
Date : December, 2019
Subject : Report on the proposed Shopping Mall Investment
The report discusses non financial factors that could be considered when making the decision of investing in
the shopping mall. The decision to invest in a major project must be evaluated using both financial and non-
financial information. From the financial perspective, using the NPV approach, the investment shows that it
cannot add value to the shareholders wealth. Non-financial considerations will include the strategic fit of the
investment with the company and its future plans.
Non- financial information
The methods used to evaluate the proposed investment from the financial perspective are subject to
considerable inaccuracy. For instance the operating costs are assumed to be 45% of revenue throughout the
investment life but prices and cost changes according to the economic conditions. The accuracy of the
discount rate estimate is subjective considering it is based on industrial averages.

Its might be important not to rely on a single estimate of net present value and Management should consider
using Sensitivity analysis or simulations. This analysis could be used to ascertain the impact of changes of
key cash flow variables as rent charges, shop occupancy on the NPV. It might also be important to consider
the real options.
The strategic importance of the investment must be established as it will influence to a large extent the final
decision. Best Hotel’s core competence is in the hotel industry and therefore, has no experience in running a
real estate business. It might be better to consider first the opportunities within the hotel industry before
diversifying into a foreign business. The hotel must also consider recruiting appropriate skilled labour force
that can run the shopping mall. The hotel should also thoroughly investigate the competition in the real estate
business and the likely reaction of competitors if it enters this new market. The Hotel should consider the
possibility of acquiring an already established business for quicker entry into the market and also reducing
competition in a way.

-sd-/
Financial consultant

5. Question:

Channel 14 Ltd (C14) is a large commercial television company based in London, with a year end of 31
December. Its senior management is considering relocating the company's production operations at the
end of 2020 to a site in Bolton, in the North of England, where, it is hoped, C14's capacity could be
increased and its running costs lowered.

The majority of C14's main administration functions would continue to be carried out in London for the
foreseeable future and the Bolton site would commence its full-time operations from 1 January 2021. The
financial implications of the move are being considered by C14's board of directors and the key figures
available are shown below.

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Equipment at the new site

Were C14 to relocate its production to Bolton, it could either buy new equipment or transfer its existing
equipment from London. New equipment would cost BDT 65 million, payable on 31 December 2020,
and because of the fast rate of technological change, would be worth BDT 30 million by the end of 20Y0.

Alternatively, the transfer (from London) and installation (in Bolton) of its existing equipment on 31
December 2020 would cost BDT 7 million (which would not attract tax depreciations, but would be
treated as tax deductible revenue expenditure). This equipment was purchased in 2018 for BDT 50
million, could be sold on 31 December 2020 for BDT 25 million and will have zero scrap value at the
end of 2023. The new equipment, having advanced technological capabilities would enable C14 to make
annual savings of BDT 5 million.

The new equipment will attract tax depreciations, but will be excluded from the general pool. This means
that it attracts 25% (reducing balance) tax depreciation in the year of expenditure and in every subsequent
year of ownership by the company, except the final year. In the final year, the difference between the
machinery's written down value for tax purposes and its disposal proceeds will be either (i) allowed to the
company as an additional tax relief, if the disposal proceeds are less than the tax written down value, or
(ii) be charged to the company, if the disposal proceeds are more than the tax written down value.

Staffing
20% of employees have already indicated that were C14 to move to Bolton then they would stay in the
London area and seek another job. As a result, redundancy payments (with an estimated total value of
BDT 1.5 million) would have to be made on 31 December 2020. Relocation costs for employees moving
to Bolton would total BDT 2 million on 31 December 2020, but there would be an annual wage saving of
BDT 1m per annum resulting from the move.

Property
C14 Currently pays BDT 3 million a year to rent its properties in London. These rental agreements are
binding on C14 until the end of 2021. By moving to the north, C14 would incur an annual total rental cost
(from 2021) of BDT 2.2 million in Bolton. The company would retain properties in London with an
annual rental cost (from 2022) of BDT 0.8m. If the move to Bolton does not go ahead then the annual
London rental charge will total BDT 5 million from 2022.

Capacity
By moving to Bolton, C14 will enhance its production capacity. This means that it will be able to (i) make
more programmes using its own facilities, thereby saving BDT 1.1 million annually and (ii) hire out those
facilities to independent programme makers, generating an annual income of BDT 1.9 million.

The company's Marketing Director feels that the proposed move to Bolton is an ideal opportunity for the
board to employ Shareholder Value Analysis (SVA). He is concerned that the stock market is
undervaluing the company at present and that, in his words, 'using SVA would, at least, give us an accurate
figure of its real worth.'

The corporation tax rate is 30% per annum and is payable in the same year as the investment/income/costs
to which it relates.
C14 uses a cost of capital figure of 8% when assessing investments.
All cash flows will take place at the end of each relevant trading year outlined above.
Note: Ignore inflation.
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Requirements:
(a) Assuming it were to proceed with the relocation of facilities to Bolton, advise C14's management
whether it would be more beneficial, in net present value terms, to acquire the new equipment and
dispose of the existing equipment or to transfer the existing equipment to Bolton. 10
(b) Advise C14's management whether it is worth, in net present value terms and based only on a
planning period 31 December 2020 to 31 December 2023, proceeding with the relocation of
facilities to Bolton. 8
(c) Explain what you understand by Shareholder Value Analysis and comment on the Marketing
Director's views. 4

Answer to the Question No: 5(a)

It would be worth purchasing new equipment – the NPV is higher (BDT 3.769m compared to BDT 2.517m).

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Answer to the Question No: 5(b)

Answer to the Question No: 5(c)

Shareholder value analysis (SVA) is one of several nontraditional metrics being used in business today.
SVA determines the financial value of a company by looking at the returns it gives its stockholders and is
based on the view that the objective of company directors is to maximize the wealth of company
stockholders. SVA has seven value drivers:
 Life of projected cash flows
 Sales growth rate
 Operating profit margin
 Corporate tax rate
 Investment in non-current assets
 Investment in working capital
 Cost of capital
The value of the business is calculated from the cash flows generated by drivers 1 to 6 which are then
discounted at the company's cost of capital (driver 7).
The Marketing Director's statement implies that he has superior knowledge than do those who, by their
actions (i.e. buying and selling in the stock market) influence share prices.. Evidence on the efficiency of
the capital market suggests that this is only likely to be true if the person making the statement has 'inside
knowledge'. Otherwise the evidence shows that the market knows best on average. It is feasible that, as the
market is 'semi-strong form' efficient the director and his colleagues will have information that gives a more
accurate figure of the value of C14.
---The End---
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