SECTION A: You should answer ALL QUESTIONS from this section including all subquestions.
Question 1
To answer this question, use the relevant information based on the financial statements of Company ABC and additional information provided in the Appendix (Figures 1 to 5) and make the necessary assumptions to solve it. Be sure to answer all sub-questions. Explain your calculations, support your answers, and state any relevant assumptions required in detail.
i) Assess the Credit Risk of Company ABC by determining the Altman ZScores for Company ABC for the years 2015, 2018 and 2019 using relevant information based on the financial statements provided in the Appendix (Figures 1 to 4). Compute the five components of the Z-Score separately as follows:
X1, Working Capital/Total Assets
X2, Retained Earnings/Total Assets
X3, Earnings before Interest and Taxes/Total Assets
X4, Market Value of Equity/Book Value of Total Liabilities
X5, Sales/Total Assets
ii) In addition, assess Company ABC's financial condition/creditworthiness in 2015, 2018 and 2019 using the Z-Score and other relevant financial ratios of your choice and identify which credit rating you expect the firm to have in these years. Looking at the 2019 financial statements, explain which measures could the firm implement to improve its creditworthiness (Use a maximum of 250 words).
Question 2
To answer this question, use the relevant information based on the selected financial and economic indicators of Country G and Country H provided in the Appendix (Figures 6 and 7) and make the necessary assumptions to solve it. Be sure to answer all sub-questions. Support your answer with any necessary calculation, explain your calculations, support your answers, and state any relevant assumptions required in detail.
Company XYZ is contemplating building a production unit in either Country G or Country H (see Figures 6 and 7 in the Appendix).
Evaluate and provide a comparative assessment of the sovereign credit risk in Year 5 in Country G and Country H, documented in Figure 6 and Figure 7, using each of the six criteria (below). For each of the six criteria, rank the countries according to risk level where "1" is "the riskiest" and "2" is the "least risky country", and explain why.
Explain in detail which countries (if any) have an overall low sovereign credit risk in year 5. What Sovereign Credit Rating would you attribute to Country G and H in Year 5 (above or below Investment Grade). Use a maximum of 250 words.
SECTION B: Answer ANY ONE question from Section B using a maximum of 600 words
Question 1
"Since the Global Financial Crisis hit in 2008, a wave of debt crises has swept the European Union threatening various countries with default and putting the euro's future in danger." Critically evaluate and discuss this statement. Explain the origin of the European Sovereign Debt Crisis initiated in 2010 and how such a crisis can be resolved. Also, explain how to prevent future sovereign debt crises from occurring again. In your answer, refer to theory and provide evidence where suitable. (40 marks)
Question 2
"More than COVID, persistently high inflation fueled by supply-chain disruption and soaring energy prices could be the primary setback derailing a still-fragile recovery in 2022. While the credit momentum remains (…) favourable, a sharp tightening in financing conditions triggered by a central bank policy (…) could put under pressure the large cohort of riskier credits and some emerging markets". (1/12/2021) Critically evaluate and discuss this statement. Explain from a credit risk standpoint what is the current global outlook for 2022. Do you consider that the vulnerabilities that led to the Global Credit Crisis of 2008 subsist in 2022? (40 marks)
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