A venture capitalist is most likely to take which THREE of the following exit routes?
A company is funded by:
• $40 million of debt (market value)
• $60 million of equity (market value)
The company plans to:
• Issue a bond and use the funds raised to buy back shares at their current market value.
• Structure the deal so that the market value of debt becomes equal to the market value of equity.
According to Modigliani and Miller's theory with tax and assuming a corporate income tax rate of 20%, this plan would:
A company plans a four-year project which will be financed by either an operating lease or a bank loan.
Lease details:
• Four year lease contract.
• Annual lease rentals of $45,000, paid in advance on the 1st day of the year.
Other information:
• The interest rate payable on the bank borrowing is 10%.
• The capital cost of the project is $200,000 which would have to be paid at the beginning of the first year.
• A salvage or residual value of $100,000 is estimated at the end of the project's life.
• Purchased assets attract straight line tax depreciation allowances.
• Corporate income tax is 20% and is payable at the end of the year following the year to which it relates.
A lease-or-buy appraisal is shown below:
Which THREE of the following items are errors within the appraisal?
Company A, a listed company, plans to acquire Company T, which is also listed.
Additional information is:
• Company A has 150 million shares in issue, with market price currently at $7.00 per share.
• Company T has 120 million shares in issue,. with market price currently at $6.00 each share.
• Synergies valued at $50 million are expected to arise from the acquisition.
• The terms of the offer will be 2 shares in A for 3 shares in T.
Assuming the offer is accepted and the synergies are realised, what should the post-acquisition price of each of Company A's shares be?
Give your answer to two decimal places.
A company is wholly equity funded. It has the following relevant data:
• Dividend just paid $4 million
• Dividend growth rate is constant at 5%
• The risk free rate is 4%
• The market premium is 7%
• The company's equity beta factor is 1.2
Calculate the value of the company using the Dividend Growth Model.
Give your answer in $ million to 2 decimal places.
$ ? million
A company's latest accounts show profit after tax of $20.0 million, after deducting interest of $5.0 million. The company expects earnings to grow at 5% per annum indefinitely.
The company has estimated its cost of equity at 12%, which is included in the company WACC of 10%.
Assuming that profit after tax is equivalent to cash flows, what is the value of the equity capital?
Give your answer to the nearest $ million.
$ ? million
Two unlisted companies TTT and YYY are being valued. The companies have similar capital structures and risk profiles and operate in the same industry sector It is easier to value TTT than to value YYY because there have recently been several well-publicised private sales of TTT shares.
Relevant company data:
What is the best estimate of YYY's share price?
A company has recently announced a scrip issue of 1 new share for every 4 existing shares. The market value of each share price before the announcement was $20.00.
What is the best estimate of the share price after the scrip issue ignoring all other influences on the share price?
Company X is based in Country A, whose currency is the A$.
It trades with customers in Country B, whose currency is the B$.
Company X aims to maintain its revenue from exports to Country B at 25% of total revenue.
Company A has the following forecast revenue:
The forecast revenue from Country B has assumed an exchange rate of A$1/B$2, that is A$1 = B$2.
If the B$ depreciates against the A$ by 10%, the ratio of revenue generated from Country B as a percentage of total revenue will:
A company is considering the issue of a convertible bond compared to a straight bond issue (non-convertible bond).
Director A is concerned that issuing a convertible bond will upset the shareholders for the following reasons:
• it will dilute their control
• the interest payments will be higher therefore reducing liquidity
• it will increase the gearing ratio therefore increasing financial risk
Director B disagrees, and is preparing a board paper to promote the issue of the convertible bond rather than a non-convertible.
Advise the Director B which THREE of the following statements should be included in his board paper to promote the issue of the convertible bond?
