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NEW QUESTION 50
The International Integrated Reporting Council (IIRC) was formed in August 2010 and brings together a cross-section of representatives from a wide variety of business sectors.
The primary purpose of the IIRC's framework is to help enable an organsation to communicate how it:

• A. minimises the environmental impact of its business processes.
• B. ensures that the conflicting needs of different stakeholder groups are met in an optimal manner.
• C. contributes positively to the economic well being of the environment in which it operates.
• D. creates value in the short, medium and long term.

Answer: D

 

NEW QUESTION 51
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 52
A listed company is financed by debt and equity.
If it increases the proportion of debt in its capital structure it would be in danger of breaching a debt covenant imposed by one of its lenders.
The following data is relevant:
The company now requires $800 million additional funding for a major expansion programme.
Which of the following is the most appropriate as a source of finance for this expansion programme?

• A. Private placement of a bond
• B. Rights issue
• C. Retained earnings
• D. Bank overdraft

Answer: B

 

NEW QUESTION 53
A company aims to increase profit before interest and tax (PBIT) each year.
The company reports in A$ but has significant export sales priced in B$.
All other transactions are priced in A$.
In 20X1, the company reported:

In 20X2, the only changes expected are:
* An increase in export prices of 10%, but no change to units sold.
* A rise in the value of the B$ to A$/B$ 2.500 (that is, A$ 1 = B$ 2.5) Is it likely that the company would still meet its objective to grow PBIT between 20X1 and 20X2?

• A. No, PBIT would fall by A$ 150 million.
• B. Yes, PBIT would increase by A$ 48 million.
• C. Yes, PBIT would increase by A$ 150 million.
• D. No, PBIT would fall by A$ 48 million.

Answer: D

 

NEW QUESTION 54
A company has:
* $6 million market value of equity
* $4 million market value of debt
* WACC of 11.04%
* Corporate income tax rate of 20%
According to Modigliani and Miller's theory of capital structure with tax, what is the ungeared cost of equity?

• A. 12.54%
• B. 10.16%
• C. 12.00%
• D. 16.24%

Answer: C

 

NEW QUESTION 55
Providers of debt finance often insist on covenants being entered into when providing debt finance for companies.
Agreement and adherence to the specific covenants is often a condition of the loan provided by the lender.
Which THREE of the following statements are true in respect of covenants?

• A. Covenants are entered into to impose financial discipline on the company.
• B. Covenants are entered into to eliminate the tax liability of the company.
• C. Covenants enable the lender to demand immediate repayment or to renegotiate terms if it is breached.
• D. Covenants are entered into to penalise the company.
• E. Covenants are entered into to give the lender added protection on the loan extended to the company.

Answer: A,C,E

Explanation:
Explanation
Discursive_F0

 

NEW QUESTION 56
Extracts from a company's profit forecast for the next financial year as follows:

Since preparing the forecast, the company has decided to return surplus cash to shareholders by a share repurchase arrangement.
The share repurchase would result in the company purchasing 20% of the 1,250 million ordinary shares currently in issue and canceling them.
Assuming the share repurchase went ahead, the impact on the company's forecast earnings per share will be an increase of:

• A. $0.200
• B. $0.175
• C. $0.125
• D. $0.100

Answer: D

 

NEW QUESTION 57
Company F's current profit before interest and taxation is $5.0 million.
It has a 10% long-term corporate bond in issue with a nominal value of $10 million.
Corporate tax is paid at 25%.
The industry average P/E multiple is 10.
Company X has made an approach to acquire the entire share capital of Company F for $30 million.
Company X has announced that anticipated synergies (after interest and taxation) arising from its acquisition of Company F will be $1 million each year in perpetuity.
Advise the Board of Directors of Company F if the bid should be accepted, based on the above information?

• A. Reject the bid because Company F is potentially worth $40 million to Company X.
• B. Reject the bid because Company F is potentially worth $50 million to Company X.
• C. Reject the bid because Company F is potentially worth $60 million to Company X.
• D. Accept the bid because Company F is potentially worth $30 million to Company X.

Answer: A

 

NEW QUESTION 58
The ex div share price of a company's shares is $2.20.
An investor in the company currently holds 1,000 shares.
The company plans to issue a scrip dividend of 1 new share for every 10 shares currently held.
After the scrip dividend, what will be the total wealth of the shareholder?
Give your answer to the nearest whole $.
$ ? .

Answer:

Explanation:
2200

 

NEW QUESTION 59
A company generates and distributes electricity and gas to households and businesses.
Forecast results for the next financial year are as follows:
The Industry Regulator has announced a new price cap of $1.50 per Kilowatt.
The company expects this to cause consumption to rise by 10% but costs would remained unaltered.
The price cap is expected to cause the company's net profit to fall to:

• A. $20.0 million profit
• B. $27.5 million profit
• C. $47.5 million profit
• D. $35.0 million loss

Answer: C

 

NEW QUESTION 60
A company's current profit before interest and taxation is $1.1 million and it is expected to remain constant for the foreseeable future.
The company has 4 million shares in issue on which the earnings yield is currently 10%. It also has a $2 million bond in issue with a fixed interest rate of 5%.
The corporate income tax rate is 20% and is expected to remain unchanged.
Which of the following is the best estimate of the current share price?

• A. $2.50
• B. $2.75
• C. $2.00
• D. $1.10

Answer: C

 

NEW QUESTION 61
Which THREE of the following long term changes are most likely to increase the credit rating of a company?

• A. A decrease in the dividend cover ratio.
• B. A decrease in the (Net debt) / (Earnings before interest, tax, depreciation and amortisation) ratio.
• C. An increase in the free cashflow generated from operations.
• D. An increase in the interest cover ratio.
• E. A decrease in the (Book value of debt) / (Book value of equity) ratio.

Answer: B,C,D

 

NEW QUESTION 62
An unlisted company wishes to obtain an estimated value for its shares in anticipation of a private sale of a large parcel of shares.
Relevant data for the unlisted company:
* It has a residual dividend policy.
* It has earnings that are highly sensitive to underlying economic conditions.
* It is a small business in a large industry where there are listed companies but there are none with a similar capital structure.
The company intends to base valuations on the cost of equity of a proxy company after adjusting for any differences in capital structure where appropriate.
Which of the following methods is likely to give the most accurate equity value for this unlisted company?

• A. P/E based valuation using the P/E of a similar listed company in the same industry.
• B. Dividend valuation model.
• C. Net asset valuation.
• D. Discounted cash flow analysis at WACC based on free cash flow to equity.

Answer: B

 

NEW QUESTION 63
A company generates and distributes electricity and gas to households and businesses.
Forecast results for the next financial year are as follows:

The Industry Regulator has announced a new price cap of $1.50 per Kilowatt.
The company expects this to cause consumption to rise by 10% but costs would remained unaltered.
The price cap is expected to cause the company's net profit to fall to:

• A. $20.0 million profit
• B. $27.5 million profit
• C. $47.5 million profit
• D. $35.0 million loss

Answer: C

 

NEW QUESTION 64
Company A is planning to acquire Company B.
Company A's managers think they can improve the performance of Company B to the extent that its own P/E ratio should be applied to Company B's earnings.
Relevant Data:
What is the expected synergy if the acquisition goes ahead?
Give your answer to the nearest $ million.
$ ? million

Answer:

Explanation:
8, 8000000

 

NEW QUESTION 65
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?

• A. Trade sale of shares to an external 3rd party.
• B. The private company conducts a stock split of its share capital.
• C. The private company undertakes a 1 for 4 rights issue.
• D. The private company buys back the equity shares.
• E. The private company obtains a stock market listing.

Answer: A,D,E

 

NEW QUESTION 66
A listed company is planning a share repurchase.
The following data applies:
* There are 10 million shares in issue
* The share repurchase will involve buying back 20% of the shares at a price of $0.75
* The company is holding $2 million cash
* Earnings for the current year ended are $2 million
The Directors are concerned about the impact that this repurchase programme will have on the company's cash balance and current year earnings per share (EPS) ratio.
Advise the directors which of the following statements is correct?

• A. The cash balance will decrease by 75% and EPS will increase by 25%.
• B. The cash balance will decrease by 20% and the EPS will increase by 25%.
• C. The cash balance will decrease by 20% and the EPS will decrease by 25%.
• D. The cash balance will decrease by 75% and EPS will decrease by 25%.

Answer: A

 

NEW QUESTION 67
Which THREE of the following would be most important if a hospital wishes to review the effectiveness of its services?

• A. Average waiting times for treatment.
• B. Revenue generated from car park charges.
• C. Patient satisfaction ratings.
• D. Staff costs compared to previous years.
• E. The proportion of surgical procedures that are deemed to be successful.

Answer: A,C,E

 

NEW QUESTION 68
On 31 October 20X3:
* A company expected to agree a foreign currency transaction in January 20X4 for settlement on 31 March
20X4.
* The company hedged the currency risk using a forward contract at nil cost for settlement on 31 March
20X4.
* The transaction was correctly treated as a cash flow hedge in accordance with IAS 39 Financial Instruments: Recognition and Measurement.
On 31 December 20X3, the financial year end, the fair value of the forward contract was $10,000 (asset).
How should the increase in the fair value of the forward contract be treated within the financial statements for the year ended 31 December 20X3?

• A. Not recognised in 20X3 as the gain will be offset by a loss on the hedged transaction.
• B. A $10,000 profit will be recognised within other comprehensive income.
• C. Not recognised in 20X3 as the forward contract is not settled until after the year end.
• D. A $10,000 profit will be recognised within the Income Statement.

Answer: B

 

NEW QUESTION 69
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 undertakes to pass on any cost savings to customers.
• D. Company Y agrees to dispose of specified outlets which geographically overlap those of Company Z.

Answer: D

 

NEW QUESTION 70
A company intends to sell one of its business units, Company R by a management buyout (MBO).
A selling price of $100 million has been agreed.
The managers are discussing with a bank and a venture capital company (VCC) the following financing proposal:
The VCC requires a minimum return on its equity investment in the MBO of 30% a year on a compound basis over 5 years.
What is the minimum TOTAL equity value of Company R in 5 years time in order to meet the VCC's required return?
Give your answer to one decimal place.
$ ? million

Answer:

Explanation:
111.4, 111, 111.0, 111.1, 111.2, 111.3, 111.5, 111.6, 111.7

 

NEW QUESTION 71
Company Z has just completed the all-cash acquisition of Company A.
Both companies operate in the advertising industry.
The market considered the acquisition a positive strategic move by Company Z.
Which THREE of the following will the shareholders of Company Z expect the company's directors to prioritise following the acquisition?

• A. The integration and retention of key employees.
• B. The realisation of anticipated post-acquisition synergies.
• C. The development of a dividend policy to meet the expectations of the target company shareholders.
• D. The regulatory approval required to complete the acquisition.
• E. The retention of key customers of the acquired company.

Answer: A,B,E

 

NEW QUESTION 72
A company has some 7% coupon bonds in issue and wishes to change its interest rate profile.
It has decided to do this by entering into a plain coupon interest rate swap with it's bank.
The bank has quoted a swap rate of: 6.0% - 6.5% fixed against LIBOR.
What will the company's new interest rate profile be?

• A. FIXED at 6.5%
• B. VARIABLE at LIBOR + 1.0%
• C. VARIABLE at LIBOR + 0.5%
• D. VARIABLE at LIBOR

Answer: B

 

NEW QUESTION 73
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. It give on estimate of the likely shareholder value that will be created.
• B. It avoids the problem of having to forecast a sustainable level of future growth.
• C. Using cash is theoretically superior to using profits in a valuation calculation.
• D. The calculations are much simpler.
• E. It incorporates the time value of money.

Answer: C,D,E

 

NEW QUESTION 74
A listed company follows a policy of paying a constant dividend. The following information is available:
* Issued share capital (nominal value $0.50) $60 million
* Current market capitalisation $480 million
The shareholders are requesting an increased dividend this year as earnings have been growing. However, the directors wish to retain as much cash as possible to fund new investments. They therefore plan to announce a
1-for-10 scrip dividend to replace the usual cash dividend.
Assuming no other influence on share price, what is the expected share price following the scrip dividend?
Give your answer to 2 decimal places.
$ ?

Answer:

Explanation:
3.64, 3.63, 3.65

 

NEW QUESTION 75
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