Passed Exam Today F3

Expected dividend in one year's time / (cost of equity - growth rate).

Total earnings x appropriate price-earnings ratio.

Forecast future cash flows to all Investors, discounted at the weighted average cost of capital.

Forecast future cash flows to equity, discounted at the cost of equity.

Non-current assets, plus current assets, minus current liabilities

A zero coupon will eliminate the tax shield effect on debt payments.

Changes in corporation tax rates will have no effect on the tax shield of fixed rate debentures.

The true cost of servicing debt instruments to the company is the post-tax cost of debt.

If corporation tax rates rise, the tax shield effect on debenture interest will be reduced.

A bond issuer must appoint at least one market-maker to ensure that there is a liquid market in its traded bonds.

The redemption yield on a corporate bond can be determined by calculating the internal rate of return based on the cash flows arising during the duration of the bond.

Investors in traded bonds have an ownership (or equity stake) in the company which issued the bonds.

A corporate entity coming to the bond market for the first time will find it easier to issue corporate bonds than to arrange a conventional term loan.

Governments are the most frequent issuers of bonds and the proceeds are used to fund government expenditure or service the national debt.

The use of equity finance reduces the company's overall financial risk.

The use of equity finance will create pressure for increases in dividend per share in the future.

The use of debt finance will always result in an increase in earnings per share.

Retained earnings is the cheapest form of equity finance.

The use of debt finance increases the cost of equity.

The use of debt finance is always preferable to equity finance.