A company in country T is considering either exporting its product directly to customers in country P or establishing a manufacturing subsidiary in country P.

The corporate tax rate in country T is 20% and 25% tax depreciation allowances are available

Which TIIRCC of the following would be considered advantages of establishing a subsidiary in country T?

An all equity financed company reported earnings for the year ending 31 December 20X1 of $5 million.

One of its financial objectives is to increase earnings by 5% each year.

In the year ending 31 December 20X2 it financed a project by issuing a bond with a $1 million nominal value and a coupon rate of 7%.

The company pays corporate income tax at 30%.

 

If the company is to achieve its earnings target for the year ending 31 December 20X2, what is the minimum operating profit (profit before interest and tax) that it must achieve?

A company plans to cut its dividend but is concerned that the share price will fall.  This demonstrates the _____________  effect

A company plans to cut its dividend but is concerned that the share price will fall.  This demonstrates the _____________  effect

The directors of a financial services company need to calculate a valuation of their company’s equity in preparation for an upcoming initial Public Offering (IPO) of shares. At a recent board meeting they discussed the various methods of business valuation.

The Chief Executive suggested using a Price-earing (P./E) method of valuation, but the finance Director argued that a valuation based on forecast cash flows to equity would be more appropriate.

Which THREE of the following are advantages of valuation based on forecast cash flows to equity, compared to a valuating using a price earnings methods?

A company is planning to repurchase some of its shares. Relevant details are as follows:

   • 100 million shares in issue

   • Current share price $5

   • 5 million shares to be repurchased

   • 10% repurchase premium

   • Repurchased shares to be cancelled

What would you expect the share price after the repurchase to be?

 

Give your answer to two decimal places.

 

$ ?  

An unlisted company:

• Is owned by the original founder and member of their families.
• Is growing more rapidly than other companies in the same industry.
• Pays a fixed annual divided

Which of the following methods would be the most appropriate to value this company’s equity?

A venture capitalist has made an equity investment in a private company and is evaluating possible methods by which it can exit the investment over the next 3 years. The private company shareholders comprise the four original founders and the venture capitalist. 

 Advise the venture capitalist which THREE of the following methods will enable it to exit its equity investment?

The directors of a unlisted manufacturing company have prepared a valuation of their company using the price-earning method.

Their calculation is:

Value if the company‘s equity = $6 million x 10 =$60 million where.

• $6 million is the company’s reported profit before interested and tax in the most recent accounting period and
• 10 is the average price-earnings ratio for all listed companies

Which THREE of the following are weakness of this valuation?

A UK company enters into a 5 year borrowing with bank P at a floating rate of GBP Libor plus 3%

It simultaneously enters into an interest rate swap with bank Q at 4.5% fixed against GBP Libor plus 1.5%

What is the hedged borrowing rate, taking the borrowing and swap into account?

Give your answer to 1 decimal place.

H Company has a fixed rate load at 10.0%, but wishes to swap to variable. It can borrow at LIBOR 8%.

The bank is currently quoting swap rates of 3.1% (bid) and 3.5% (ask).

What net rate will H Company pay if it enters into the swap?

Which THREE of the following long term changes are most likely to increase the credit rating of a company?

A company is valuing its equity prior to an initial public offering (IPO). 

 

Relevant data:

   • Earnings per share $1.00

   • WACC is 8% and the cost of equity is 12%

   • Dividend payout ratio 40%

   • Dividend growth rate 2% in perpetuity

 

The current share price using the Dividend Valuation Model is closest to:

A company plans to raise $12 million to finance an expansion project using a rights issue.

Relevant data:

• Shares will be offered at a 20% discount to the present market price of $15.00 per share.

• There are currently 2 million shares in issue.

• The project is forecast to yield a positive NPV of $6 million.

What is the yield-adjusted Theoretical Ex-Rights Price following the announcement of the rights issue?

PYP is a listed courier company. It is looking to raise new finance to fit each of its delivery vans with new equipment to allow improved parcel tracking for customers The senior management team of PYP have decided on a 10-year secured bond to finance this investment-

Which TWO of the following variables are most likely to decrease the yield to maturity of the bond?

A listed company is planning to raise $21.6 million to finance a new project with a positive net present value of $5 million.  The finance is to be raised via a rights issue at a 10% discount to the current share price.  There are currently 100 million shares in issue, trading at $2.00 each.

 

Taking the new project into account,  what would the theoretical ex-rights price be?

 

Give your answer to two decimal places.

 

$ ?  

A company is undertaking a lease-or-buy evaluation, using the post-tax cost of bank borrowing as the discount rate.

 

Details of the two alternatives are as follows:

 

Buy option:

   • To be financed by a bank loan

   • Tax depreciation allowances are available on a reducing-balance basis

   • Assets depreciated on a straight-line basis

Lease option:

   • Finance lease

   • Maintenance to be paid by the lessee

   • Tax relief available on interest payments and book depreciation

Which THREE of the following are relevant cashflows in the lease-or-buy appraisal?

A listed company with a growing share price plans to finance a four-year research project with debt. 

The main criterion for the finance is to minimise the annual cashflow payments on the debt.

The research will be sold at the end of the project.

 

Which of the following would be the most suitable financing method for the company?

 

M is an accountant who wishes to take out a forward rate agreement as a hedging instrument but the company treasurer has advised that a short-term interest rate future would be a better option.

Which of the following is true of a short-term interest rate future?

A company is concerned about the interest rate that it will be required to pay on a planned bond issue.

It is considering issuing bonds with warrants attached.

 

Advise the directors which of the following statements about warrants is NOT correct?