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NEW QUESTION # 168
The competition authorities are investigating the takeover of Company Z by a larger company, Company Y.
Both companies are food retailers.
The takeover terms involve using a part cash, part share exchange means of payment.
Company Z is resisting the bid, arguing that it undervalues its business, while lobbying extensively among politicians to sway public opinion against the bidder.
Which of the following actions by Company Y is most likely to persuade the competition authorities to approve the acquisition?
- A. Company Y increases the cash element of its bid offer.
- B. Company Y guarantees to preserve employment at its cental distribution depot.
- C. Company Y agrees to dispose of specified outlets which geographically overlap those of Company Z.
- D. Company Y undertakes to pass on any cost savings to customers.
Answer: C
NEW QUESTION # 169
A company needs to raise $40 million to finance a project. It has decided on a right issue at a discount of 20% to its current market share price.
There are currently 20 million shares in issue with a nominal value of $1 and a market price of $10.00 per share.
- A. 1 new share for every 25 existing shares
- B. 1 new share for every 20 existing shares
- C. 1 new share for every 5 existing shares
- D. 1 new share for every 4 existing shares
Answer: D
NEW QUESTION # 170
A company is considering either exporting its product directly to customers in a foreign country or establishing a manufacturing subsidiary in that country.
The corporate tax rate in the company's own country is 20% and 25% tax depreciation allowances are available.
Which THREE of the following would be considered advantages of establishing the subsidiary in the foreign country?
- A. There is a double tax treaty between the company's domestic country and the foreign country.
- B. There are restrictions on companies wishing to remit profit from the foreign country.
- C. The corporate tax rate in the foreign country is 40%.
- D. Year 1 tax depreciation allowances of 100% are available in the foreign country.
- E. There are high customs duties payable on products entering the foreign country.
Answer: A,D,E
NEW QUESTION # 171
The Board of Directors of Company T is considering a rights issue to fund a new investment opportunity which has a zero NPV.
The Board of Directors wishes to explain to shareholders what the theoretical impact on their wealth will be as a result of different possible actions during the rights issue.
Which THREE of the following statements in respect of theoretical shareholder wealth are true?
- A. If shareholders partially exercise their rights and sell the remaining rights entitlement there will be no impact on their wealth.
- B. If the shareholders allow their rights to lapse (do nothing) there will be no impact on their wealth.
- C. If the shareholders only partially exercise their rights and allow the remainder to lapse there will be no impact on their wealth.
- D. If shareholders sell their entire rights entitlement there will be no impact on their wealth.
- E. If shareholders exercise their full rights there will be no impact on their wealth.
Answer: A,D,E
NEW QUESTION # 172
Which THREE of the following prevent the Purchasing Power Parity Model from operating effectively in practice?
- A. Import tariffs
- B. Differing tax regimes
- C. Arbitrage
- D. Transport costs
- E. Consumer tastes
Answer: A,B,C
NEW QUESTION # 173
Which THREE of the following are likely to be strategic reasons for a horizontal acquisition?
- A. Reduction of risk by building a larger portfolio
- B. To achieve economies of scale
- C. Acquisition of an undervalued company
- D. To secure key parts of the value chain
- E. Reduction of competition
Answer: B,C,E
NEW QUESTION # 174
A company generates operating profit of $17.2 million, and incurs finance costs of $5.7 million.
It plans to increase interest cover to a multiple of 5-to-1 by raising funds from shareholders to repay some existing debt. The pre-tax cost of debt is fixed at 5%, and the refinancing will not affect this.
Assuming no change in operating profit, what amount must be raised from shareholders?
Give your answer in $ millions to the nearest one decimal place.
$ ?
Answer:
Explanation:
45.2
NEW QUESTION # 175
On 1 January 20X1 a company entered into a S200 million interest rate swap with a bank at a fixed rate of 4% against the 6-month risk-free rate to hedge the interest rale risk on a floating rate borrowing.
6-month risk-free rate was as follows:
What is the net settlement due under the swap contract on 1 July 20X1?
- A. $1 000 000 net receipt to the company.
- B. S1 500.000 net payment by the company.
- C. S1 000 000 net payment by the company.
- D. $1.500.000 net receipt to the company.
Answer: B
NEW QUESTION # 176
Company BBB has prepared a valuation of a competitor company, Company BBD. Company BBB is intending to acquire a controlling interest in the equity of Company BBD and therefore wants to value only the equity of Company BBD.
The directors of Company BBB have prepared the following valuation of Company BBD:
Value of Equity = 4.63 + 5.14 + 5.56 = S15.33 million
Additional information on Company BBD:
Which THREE of the following are weaknesses of the above valuation?
- A. Free cash flows to all investors should be discounted at the cost of equity of 10% rather than WACC of
8%. - B. The valuation is understated as the directors have failed to include a perpetuity factor in the calculations.
- C. The valuation is overstated as the directors have failed to deduct tax from the free cash flows.
- D. The approach used calculates the value of the total entity not the value of equity.
- E. The valuation is understated as forecast future growth has been ignored beyond year 3.
Answer: B,C,D
NEW QUESTION # 177
Company BBB has prepared a valuation of a competitor company, Company BBD. Company BBB is intending to acquire a controlling interest in the equity of Company BBD and therefore wants to value only the equity of Company BBD.
The directors of Company BBB have prepared the following valuation of Company BBD:
Value of Equity = 4.63 + 5.14 + 5.56 = S15.33 million
Additional information on Company BBD:
Which THREE of the following are weaknesses of the above valuation?
- A. The valuation is understated as the directors have failed to include a perpetuity factor in the calculations.
- B. The valuation is overstated as the directors have failed to deduct tax from the free cash flows.
- C. The approach used calculates the value of the total entity not the value of equity.
- D. The valuation is understated as forecast future growth has been ignored beyond year 3.
- E. Free cash flows to all investors should be discounted at the cost of equity of 10% rather than WACC of 8%.
Answer: A,B,C
NEW QUESTION # 178
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.
$ ?
- A. 4.97, 3.98
- B. 4.97, 4.98
Answer: B
NEW QUESTION # 179
Company A is based in country A with the AS as its functional currency. It expects to receive BS20 million from Company B in settlement of an export invoice.
The current exchange rate is A$1 =B$2 and the daily standard deviation of this exchange rate = 0 5%
What is the one-day 95% VaR in AS?
- A. A$822,500
- B. A$50,000
- C. A$164,500
- D. A$82,250
Answer: D
NEW QUESTION # 180
A venture capitalist invests in a company by means of buying:
* 9 million shares for $2 a share and
* 8% bonds with a nominal value of $2 million, repayable at par in 3 years' time.
The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment.
The company has 10 million shares in issue.
What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?
Give your answer to the nearest $ million.
$ million.
Answer:
Explanation:
34, 35,
34000000, 35000000
NEW QUESTION # 181
Company Z wishes to borrow $50 million for 10 years at a fixed rate of interest.
Two alternative approaches are being considered:
A: Issue a 10 year bond at a fixed rate of 6%, or B: Borrow from the bank at Libor +2.5% for a 10 year period and simultaneously enter into a 10 year interest rate swap.
Current 10 year swap rates against Libor are 4.0% - 4.2%.
What is the difference in the net interest cost between the two alternative approaches?
- A. Approach B is 2.0% a year less expensive
- B. Approach B is 2.2% a year less expensive
- C. Approach A is 0.5% a year less expensive
- D. Approach A is 0.7% a year less expensive
Answer: D
NEW QUESTION # 182
Company Y plans to diversify into an activity where Company X has an equity beta of 1.6, a debt beta of zero and gearing of 50% (debt/debt plus equity).
The risk-free rate of return is 5% and the market portfolio is expected to return 10%.
The rate of corporate income tax is 30%.
What would be the risk-adjusted cost of equity if Company Y has 60% equity and 40% debt?
- A. 13%
- B. 11.9%
- C. 11.6%
- D. 9.1%
Answer: B
NEW QUESTION # 183
Company C is a listed company. It is currently considering the acquisition of Company D. The original founder of Company C currently owns 52% of the shares.
Alternative forms of consideration for Company D being considered are as follows:
* Cash payment, financed by new borrowing
* issue of new shares in Company C
Which of the following is an advantage of a cash offer over a share-for exchange from the viewpoint of the original founder of Company C?
- A. A cash offer would result in a lower gearing ratio therefore reduce the weighted overage cost of capital whereas a cash offer would not.
- B. A share-for-share exchange would require the approval shareholders in Company C but a cash offer would not.
- C. A share-for-share exchange would require the approval of the Competition Authorities but a cash offer would not.
- D. A share for share exchange would result in a significant change in control of Company C whereas a cash offer would not.
Answer: D
NEW QUESTION # 184
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.
Answer:
Explanation:
$ ?
4.97, 4.98
NEW QUESTION # 185
An aerospace company is planning to diversify into car manufacturing.
Relevant data:
What is the the cost of equity to be used in the WACC for the project appraisal?
Give your answer in percentage, as a whole number.
? %
Answer:
Explanation:
19
NEW QUESTION # 186
Company M plans to bid for Company J.
Company M has 20 million shares in issue and a current share price of $10.00 before publicly announcing the planned takeover. Company J has 10 million shares in issue and a current share price of $4.00.
The directors of Company M are considering an all-share bid of 1 Company M shares for 2 Company J shares.
Synergies worth $20m are expected from the acquisition.
What is the likely change in wealth for Company M's shareholders (in total) if the bid is accepted?
Give your answer to the nearest $ million.
Answer:
Explanation:
$ ? million
8
NEW QUESTION # 187
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