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NEW QUESTION # 144
PTT has a number of subsidiary companies around the world, including FTT based in Europe and CTT based in Indonesia CTT purchases all of us raw materials from FTT CTT processes these materials and the resulting products are exported to several different countries CTT pays FTT in the Indonesian currency.
Indonesia's inflation is higher than that of FTTs home country
Which of the following statements are correct?
Select ALL that apply
- A. FTT could ask for ail payments to K to be made in its home currency, which would reduce exposure to currency risk
- B. FTT will be exposed to transaction risk The Indonesian currency that it receives Is likely to decline over time because of anticipated inflation
- C. CTT will be exposed to translation risk because FTT will almost certainly have to reflect the changing prices in its selling price and it will be difficult for CTT to make a profit
- D. FTT could investigate whether it could import anything from Indonesia in order to create a natural hedge.
- E. FTT will be exposed to transaction risks as the Indonesian currency will appreciate over time because of the expected inflation rates
Answer: A,B,E
NEW QUESTION # 145
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
Answer:
Explanation:
300,
300000000
NEW QUESTION # 146
Company Z has identified four potential acquisition targets: companies A, B, C and D.
Company Z has a current equity market value of $590 million.
The price it would have to pay for the equity of each company is as follows:
Only one of the target companies can be acquired and the consideration will be paid in cash.
The following estimations of the new combined value of Company Z have been prepared for each acquisition before deduction of the cash consideration:
Ignoring any premium paid on acquisition, which acquisition should the directors pursue?
- A. D
- B. B
- C. C
- D. A
Answer: A
NEW QUESTION # 147
A company has an opportunity to invest in a positive net present value project, but the project would require debt finance that would push the company's gearing ever a limit imposed by a debt covenant on an existing loan.
Which THREE of the following actions could be taken by the company?
- A. The project could be foregone if it cannot be funded without breaching the covenant
- B. The project could proceed if the cash inflows from the project will enable some of the debt to be repaid before the end of the financial year and so the breach of covenant may never be detected
- C. The company could seek alternative sources of finding, such as a reduction in the annual dividend payment, to finance the project.
- D. The company could approach its existing Lenders to negotiate a relaxation of :he conditions imposed by the covenant.
- E. The directors could meet with key shareholder to discuss whether they wish the project proceed despite the breach of the covenant
- F. The directors could proceed will the project because their primary duly is maximise shared older wealth, even if that conflicts with lenders' interest.
Answer: A,C,D
NEW QUESTION # 148
The Board of Directors of a listed company wish to estimate a reasonable valuation of the entire share capital of the company in the event of a takeover bid.
The company's current profit before taxation is $4.0 million.
The rate of corporate tax is 25%.
The average P/E multiple of listed companies in the same industry is 8 times current earnings.
The P/E multiple of recent takeovers in the same industry have ranged from 9 times to 10 times current earnings.
The average P/E multiple of the top 100 companies on the stock market is 15 times current earnings.
Advise the Board of Directors which of the following is a reasonable estimate of a range of values of the entire share capital in the event of a bid being made for the whole company?
- A. Minimum = $24 million, and maximum = $45 million.
- B. Minimum = $36 million, and maximum = $40 million.
- C. Minimum = $27 million, and maximum = $30 million.
- D. Minimum = $32 million, and maximum = $60 million.
Answer: C
NEW QUESTION # 149
A listed company plans to raise new capital which will be required for future investment projects. The company has a gearing ratio of 50%, which is just below the company's target ratio.
The directors are comparing the benefits and drawbacks of each of the following two alternative sources of finance;
* Unsecured bank borrowings.
* Convertible bonds.
Which of the following statements is correct?
- A. If the convertible bond holders eventually convert to shares the company's gearing ratio will rise whereas it will be unaffected if finance is with unsecured borrowings.
- B. If the share price does not increase sufficiently for conversion to take place the company will have more expensive debt with a convertible bond than with unsecured borrowings.
- C. Additional finance will be raised upon conversion of the convertible bond but not with unsecured borrowings.
- D. The coupon rate of a convertible bond is likely to be lower than for unsecured borrowings.
Answer: C
NEW QUESTION # 150
Company W has received an unwelcome takeover bid from Company B. The offer is a share exchange of 3 shares in Company B for 5 shares in Company W or a cash alternative of $5.70 for each Company W share.
Company B is approximately twice the size of Company W based on market capitalisation. Although the two companies have some common business interested the main aim of the bid is diversification for Company B.
Company W has substantial cash balances which the directors were planning to use to fund an acquisition. These plans have not been announced to the market.
The following share price information is relevant.
Which of the following would be the most appropriate action by Company W's directors following receipt of this hostile bid?
- A. Change the Articles of Association to increase the percentage of shareholder votes required to approve a takeover.
- B. Pay a one-off special dividend.
- C. Write to shareholders explaining fully why the company's share price is under valued.
- D. Refer the bid to the country's competition authorities.
Answer: C
NEW QUESTION # 151
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.
Answer:
Explanation:
8.24
NEW QUESTION # 152
Company WWW is identical in all operating and risk characteristics to Company ZZZ. but their capital structures differ. Company WWW and Company ZZZ both pay corporate income tax at 20% Company WWW has a gearing ratio (debt: equity) of 1:3 Its pre-tax cost of debt is 6%.
Company ZZZ Is all-equity financed. Its cost of equity is 15%
What is the cost of equity tor Company WWW?
- A. 17.0%
- B. 17.4%
- C. 18.0%
- D. 17.7%
Answer: A
NEW QUESTION # 153
A large multi-divisional company in the food processing and distribution business is conducting a strategic review. The divisions all compete in the same market.
The sale of one of its underperforming food processing divisions to the divisional management team is currently being considered. The purchase by the divisional management team will require venture capital finance.
Which THREE of the following are likely to influence the multi-divisional company's decision on whether or not to sell the under-performing division to the management team?
- A. The quality of the management team and its ability to manage the divested division successfully.
- B. The ability of the management team to raise the finance required to complete the purchase of the division at a reasonable price.
- C. The specific conditions imposed on the management team by the venture capital provider.
- D. The divisional management team has detailed confidential information about the operation of the other divisions.
- E. The divisional management team has skills and experience that are important for the future successful operation of other divisions.
Answer: B,D,E
NEW QUESTION # 154
The directors of a multinational group have decided to sell off a loss-making subsidiary and are considering the following methods of divestment:
1. Trade sale to an external buyer
2. A management buyout (MBC)
The MDO team and the external buyer have both offered the same price to the parent company for the subsidiary.
Which of the following is an advantage to the parent company of opting for a MBO compared to a trade sale as the preferred method of divestment?
- A. Avoid a hostile reaction from key management.
- B. Raise the cash more quickly.
- C. Focus on the core competencies of the business
- D. Retain the know edge of key management.
Answer: A
NEW QUESTION # 155
PPP's home currency is the PS. An overseas customer is due to make a payment of A$5,000,000 to PPP in 3 months. The present spot rate is 1PS = 5A$. P can obtain an interest rate of 4% per year on P$ deposits and 6% per year on AS deposits.
Forecast the value of the customer's payment to PPP, in PS, when the payment is made in 3 months' time.
Give your answer to the nearest thousand PS.
Answer:
Explanation:
Pending
NEW QUESTION # 156
A company is located in a single country. The company manufactures electncal goods for export and for sale in its home country. When exporting, it invoices in its customers' currency. What currency risks is the company exposed to?
- A. Transaction, economic and translation risks.
- B. Translation and economic risks.
- C. Transaction risk only
- D. Transaction and economic risks
Answer: A
NEW QUESTION # 157
Company A has just announced a takeover bid for Company B. The two companies are large companies in the same industry_ The bid is considered to be hostile.
Company B's Board of Directors intends to try to prevent the takeover as they do not consider it to be in the best interests of shareholders
Which THREE of the following are considered to be legitimate post-offer defences?
- A. Refer the bid to the competition authorities to try to have the bid prohibited on competition grounds
- B. Make a counter bid for Company A provided such an acquisition could enhance Company B's shareholder wealth
- C. Alter the memorandum and articles of association to state that a minimum of 75% of shareholders must agree to the bid before it can proceed
- D. Have all the assets independently professionally revalued to demonstrate that the offer undervalues the company
- E. Publish very optimistic financial forecasts for Company B even though the Board of Directors realises that these are highly unlikely to be achievable
Answer: A,B,C
NEW QUESTION # 158
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. The senior management team decide to issue an unsecured bond rather than a secured bond
- B. The senior management team decide to issue a convertible bond rather than a conventional bond
- C. The announcement of a new contract for PYP that will increase operating profits by 5% over the next 5 years.
- D. Changing the term of the bond from 1 0 years to 5 years to match the expected life of the new equipment
Answer: B,D
NEW QUESTION # 159
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.
$ ? million
- A. 0
- B. 1
Answer: B
NEW QUESTION # 160
A Venture Capital Fund currently holds a significant shareholding in a large private company as a result of funding a recent management buyout. It plans to exit this investment in 5 years time at a significant profit.
Which THREE of the following exit mechanisms are most likely to be preferred by the Venture Capital Fund?
- A. The Venture Capital Fund has a legal entitlement to sell its shareholding to any third party investor if the company has not obtained a stock market listing within 5 years.
- B. The Venture Capital Fund has an option to sell its shareholding to the company at twice its original cost which can be exercised in 5 years time.
- C. The private company obtains a stock market listing on a recognised exchange within the next 5 years.
- D. The management team agrees to buy back the Venture Capital Funds shareholding in 5 years time at its original cost.
- E. The management team has an option to buy the Venture Capital Fund's shares for their nominal value which can be exercised in 5 years time.
Answer: A,B,C
NEW QUESTION # 161
Select the category of risk for each of the descriptions below:
Answer:
Explanation:
NEW QUESTION # 162
A company intends to sell one of its business units. Company W, by a management buyout (MBO). A selling price of S200 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 35% a year on a compound basis over 5 years. What is the minimum total equity value of Company W in 5 years time in order to meet the VCC's required return? Give your answer to one decimal place.
- A. 0
- B. 1
Answer: B
NEW QUESTION # 163
A listed company has recently announced a profit warning.
The company's share price fell 20% on the day of the announcement but had been fairly static in the weeks leading up to the announcement.
Which form of efficient market is most likely to be indicated by this share price movement?
- A. Semi-strong form
- B. Strong form
- C. Random walk
- D. Weak form
Answer: A
NEW QUESTION # 164
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