ac310315162.pdf - ATTENTION The Singapore Copyright Act...

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AC3103 NANY ANG TECHNOLOGICAL UNIVERSITY SEMESTER 2 EXAMINATION 2015-2016 AC3103- Accounting Analysis and Equity Valuation April2016 Time Allowed: 2 Yz hours INSTRUCTIONS 1 This paper contains THREE (3) questions and comprises SEVEN (7) pages. 2 Answer ALL questions. 3 This is an open-book examination. 4 The number of marks allocated is shown at the end of each question. 5 Begin your answer to each question on a separate page of the answer book. 6 Answers will be graded for content and appropriate presentation. QUESTION NO. 1 BEGINS ON PAGE 2 1 ATTENTION: The Singapore Copyright Act applies to the use of this document. Nanyang Technological University Library
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AC3103 Question 1 Oppa Ltd is in the business of operating aesthetics clinics in Singapore. It is a favorite pick among investors as it has consistently beaten analysts' consensus earnings forecasts since its initial public offering in 2011. Oppa's main business strategy is to target middle-aged professional men who are interested in the latest minimally invasive aesthetics treatments such as microdermabrasion, chemical peel, and soft tissue fillers. It currently owns 5 clinics in Singapore and has plans to expand its operations in the Middle East. Oppa is listed on the Singapore Stock Exchange and has a financial year end of 31 December. It is subject to an income tax rate of 18%. The Chief Medical Officer, Dr. Ajusshi, has played an important role in identifying the latest aesthetic trends and getting the necessary regulatory approvals. Dr. Sarang, the Chief Executive Officer, decided to implement an employee stock option plan for Dr. Ajusshi in 2011. However, due to the potential negative impact on net income, Dr. Sarang decided to stop the employee stock option plan in 2013. At the beginning of 2014, there were still 200,000 vested stock options outstanding and each option permitted Dr. Ajusshi to buy one common share at an exercise price of $2.80 per share. At the beginning of 2014, Oppa had 1,850,000 common shares outstanding. Dr. Ajusshi exercised 150,000 of the options on 30 June 2014. For the financial year ended 31 December 2014, Oppa reported a pre-tax net income of$1,824,055. The average market price ofOppa's common share in 2014 was $4.00. To fund its expansion plans in the Middle East, Oppa issued 500,000 cumulative preference shares at $3.50 per share on 1 January 2015. The preference shares carry a dividend of$0.12 per share. No preferred dividends have been paid since issuance. On 1 July 2015, Oppa issued 3% convertible bonds with face value of $1,000,000 at 103. The interest payment is to be made semi-annually. At the time of issuance, the conversion feature was that each dollar of bond could be exchanged for one ordinary share. Similar bonds without the convertible feature were sold at par for $1,000,000. No convertible bonds have been exchanged for ordinary shares since issuance. On 1 October 2015, Oppa issued a 20% stock dividend to its common shareholders.
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