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A company is deciding whether to offer a scrip dividend or a cash dividend to its shareholders. 

Although the company has excellent long-term growth prospects, it is experiencing short-term profit and cash flow problems.

 

Which of the following statements is most likely to be a reason for choosing the scrip dividend?

A.

It is a way of raising additional finance to promote future growth.

B.

It is a way of increasing earnings per share.

C.

It is a way of encouraging shareholders to allow cash to be retained in the business.

D.

It is a way of increasing dividend per share.

Using the CAPM, the expected return for a company is 11%. The market return is 8% and the risk free rate is 2%.

 

What does the beta factor used in this calculation indicate about the risk of the company?

A.

It has greater risk than the average market risk.

B.

It has lower risk than the average market risk.

C.

It has the same risk as the average market risk.

D.

It is not possible to tell from CAPM.

A national airline has made an offer to acquire a smaller airline in the same country.

 

Which of the following would be of most concern to the competition authorities?

A.

After the acquisition the board propose to reduce the number of  flight destinations from the country.

B.

The board informed a major institutional shareholder about the proposed acquisition before informing other shareholders.

C.

After the acquisition the board propose to increase prices significantly on routes where no other airlines operate.

D.

The acquisition is likely to result in significant redundancies of staff currently working for the smaller airline. 

Company AAB is located in Country A with the A$ as its functional currency It plans to grow by acquisition and has identified Company BBA as a potential takeover candidate Company BBA is located in Country B with the BS as its functional currency.

The directors of Company AAB are concerned about foreign currency risk if the acquisition goes ahead

Which of the following will be most effective in reducing Company AAB's exposure to translation risk if the acquisition is successful1?

A.

Financing the acquisition with equity in A$’s.

B.

Setting up a mufti-currency bank account to net-off receipts and payments

C.

Financing the acquisition with borrowings in BS's

D.

Using forward contracts to fix the exchange rate between the AS and the B$

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.   

 

Company A needs to raise AS500 mi lion to invest in a new project and is considering using a pub ic issue of bonds to finance the investment.

Which THREE of the following statements-relating to this bond issue are true?

A.

A company must be listed before it can issue bones.

B.

The largest issuer of bond i3 the government.

C.

Purchasing bonds in the capital markets enables entities to borrow large amounts of finance.

D.

The bond market is unregulated making it easier to raise finance

E.

Bonds issues in the corporate debt market are underwritten.

Which of the following statements about the tax impact on debt finance is correct?

A.

Debt instruments issued with fixed and floating charges do not attract tax relief on interest paid.

B.

Preference share dividends attract tax relief in the same way as debenture interest.

C.

Interest on debt is deducted from post-tax profits.

D.

Interest on debt is deducted from pre-tax profits.

A company enters into a floating rate borrowing with interest due every 12 months over the five year life of the borrowing. 

At the same time, the company arranges an interest rate swap to swap the interest profile on the borrowing from floating to fixed rate. 

These transactions are designated as a hedge for hedge accounting purposes under IAS 39 Financial Instruments: Recognition and Measurement.

 

Assuming the hedge is considered to be effective, how would the swap be accounted for 12 months later? 

A.

The swap would be shown at nominal value in the statement of financial position and the change in value posted to other comprehensive income.

B.

The swap would be shown at nominal value in the statement of financial position and the change in value posted to profit or loss.

C.

The swap would be shown at fair value the statement of financial position and the change in value posted to other comprehensive income.

D.

The swap would be shown at fair value the statement of financial position and the change in value posted to profit or loss.

Which of the following is NOT an advantage of a share repurchase?

A.

To return surplus cash to shareholders by avoiding a one-off dividend

B.

To allow investors to sell shares if no active market currently exists

C.

To reduce the cost of capital of a company by increasing the gearing level.

D.

To enable the company to retain cash in the business for reinvestment

A company has 6 million shares in issue. Each share has a market value of $4.00.

$9 million is to be raised using a rights issue.

Two directors disagree on the discount to be offered when the new shares are issued.

   • Director A proposes a discount of 25% 

   • Director B proposes a discount of 30%

 

Which THREE of the following statements are most likely to be correct?

A.

The theoretical ex-rights price will be higher under Director B's proposal than under Director A's proposal.

B.

More shares will be issued under Director B's proposal than under Director A's proposal.

C.

The rights issue price will be $3.00 under Director A's proposal.

D.

The terms of the rights issue will be one new share for every two existing shares under Director A's proposal.

E.

Shareholder wealth will be higher under Director A's proposal than under Director B's proposal.