(a) Outline the financial benefits and disadvantages inherent in a demerger and indicatecircumstances where it might be an appropriate course of…

(a) Outline the financial benefits and disadvantages inherent in a demerger and indicatecircumstances where it might be an appropriate course of action. (10 marks)

(b) East Ltd has been approached by a foreign government which is privatising its country‟srailway system. This country is politically unstable. It would like East Ltd to sign up for afour year joint venture which would require an initial investment by East Ltd of approximatelyGHC200 million. It is possible that the contract could be renegotiated at the end of the fouryear period. This is the first time that East Ltd‟s management has been asked to consider aninvestment overseas.Required:Explain to East Ltd‟s management:

(i) The strategies that East Ltd could employ to limit the effects of political risk within thisproposal. (7 marks)

(ii) How a Net Present Value (NPV) appraisal for this overseas investment might proveproblematic for East Ltd compared to a normal Ghanaian-based appraisal.

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