A company has:
• 10 million $1 ordinary shares in issue
• A current share price of $5.00 a share
• A WACC of 15%
The company holds $10 million in cash. No interest is earned on this cash.
It will invest this in a project with an expected NPV of $4 million.
In a semi-strong efficient stock market, which of the following is the most likely share price immediately after the announcement of the new investment?
A company raised fixed rate bank finance together with an interest rate swap for the same term and same principal value to pay floating receive fixed rate interest on an annual basis.
Which THREE of the following statements are correct?
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 $2.00 per Kilowatt.
The company expects this to cause consumption to rise by 15% but costs would remained unaltered.
The price cap is expected to cause the company's net profit to fall to:
Company M is a listed company in a highly technical service industry.
The directors are considering making a cash offer for the shares in Company Q, an unquoted company in the same industry.
Relevant data about Company Q:
• The company has seen consistent growth in earnings each year since it was founded 10 years ago.
• It has relatively few non-current assets.
• Many of the employees are leading experts in their field. A recent exercise suggested that the value of the company's human capital exceeded the value of its tangible assets.
The directors and major shareholders of Company Q have indicated willingness to sell the company.
Before negotiations become too advanced, the directors of Company M are considering the benefits to their company that would follow the acquisition.
Which THREE of the following are the most likely benefits of the acquisition to Company M's shareholders?
Company J plans to acquire Company K, an unlisted company whose equity is to be valued using a P/E ratio approach.
A listed company has been identified which is very similar to Company K and which can be used as a proxy.
However, the growth prospects of Company K are higher than those of the proxy.
The Directors of Company J are aware that certain adjustments will be necessary to the proxy company's P/E ratio in order to obtain a more reliable valuation.
The following adjustments have been agreed:
• 20% due to Company K being unlisted.
• 15% to allow for the growth rate difference.
The total adjustment to the proxy p/e ratio is:
A company's main objective is to achieve an average growth in dividends of 10% a year.
In the most recent financial year:
Sales are expected to grow at 8% a year over the next 5 years.
Costs are expected to grow at 5% a year over the next 5 years.
What is the minimum dividend payout ratio in 5 years' time that would allow the company to achieve its objective?
CI IJ has decided to move its production plant to overseas country X. This would make the product cheaper to produce. The technology used to make the product is very advanced and some of the skilled staff would have to move to country X.
The Production Director has identified that there are some political risks in moving to county X.
For each of the political risks of moving to country X shown below, select the correct method for reducing the risk.
Company T is a listed company in the retail sector.
Its current profit before interest and taxation is $5 million.
This level of profit is forecast to be maintainable in future.
Company T has a 10% corporate bond in issue with a nominal value of $10 million.
This currently trades at 90% of its nominal value.
Corporate tax is paid at 20%.
The following information is available:
Which of the following is a reasonable expectation of the equity value in the event of an attempted takeover?
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.
Company A is based in country A with the AS as its functional currency. It expects to receive BS20 million from Company B in settlement of an export invoice.
The current exchange rate is A$1 =B$2 and the daily standard deviation of this exchange rate = 0 5%
What is the one-day 95% VaR in AS?
TESTED 22 Feb 2025
