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| Section | Weight | Objectives |
|---|---|---|
| Financial Policy Decisions | 15% | - Strategic financial objectives and stakeholder impact
|
| Financial Risks | 20% | - Types of financial risk
- Risk management techniques
|
| Sources of Long-term Funds | 25% | - Equity finance
- Debt finance
|
| Business Valuation | 40% | - Investment appraisal
- Mergers, acquisitions and divestments
|
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NEW QUESTION # 80
Formed in 2010, the International Integrated Reporting Council <IIRC) 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 organisation to communicate which of the following'?
Answer: D
NEW QUESTION # 81
A company plans a four-year project which will be financed by either an operating lease or a bank loan.
Lease details:
* Four year lease contract.
* Annual lease rentals of $45,000, paid in advance on the 1st day of the year.
Other information:
* The interest rate payable on the bank borrowing is 10%.
* The capital cost of the project is $200,000 which would have to be paid at the beginning of the first year.
* A salvage or residual value of $100,000 is estimated at the end of the project's life.
* Purchased assets attract straight line tax depreciation allowances.
* Corporate income tax is 20% and is payable at the end of the year following the year to which it relates.
A lease-or-buy appraisal is shown below:
Which THREE of the following items are errors within the appraisal?
Answer: A,D,F
NEW QUESTION # 82
A company has identified potential profitable investments that would require a total of S50 million capital expenditure over the next two years The following information is relevant.
* The company has 100 million shares in issue and has a market capitalisation of S500 million
* It has a target debt to equity ratio of 40% based on market values This ratio is currently 30%
* Earnings for the current year are expected to be S1 00 million
* Its last dividend payment was $1 per share One of the company's objectives is to increase dividends by at least 10% each year
* The company has no cash reserves
Which of the following is the most suitable method of financing to meet the company's requirements?
Answer: B
Explanation:
Given:
Shares: 100m; market cap = $500m # share price = $5.
Target debt-to-equity = 40%; currently 30%.
Equity (market) = 500m
Current debt = 0.30 ร 500 = $150m
Target debt = 0.40 ร 500 = $200m
# Extra debt capacity = $50m.
Current earnings = $100m.
Last dividend = $1 per share # $100m total.
Objective: increase dividends by at least 10% each year.
No cash reserves.
Options:
A). Share repurchase instead of dividend - violates objective to increase dividends.
B). Increase debt to meet target D/E - raises $50m (exactly what's needed) and keeps dividend policy intact # Best fit.
C). Cut dividend to $0.50 - directly contradicts dividend growth objective.
D). Hold dividend at $1 for two years - no 10% annual increase, also violates objective.
NEW QUESTION # 83
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?
Answer: C,D,E
Explanation:
We're comparing valuation using forecast cash flows to equity (DCF / FCFE) vs P/E multiple:
A). Using cash is theoretically superior to using profits - True. Valuation theory (and CIMA F3) say value is based on cash flows, not accounting profits. Cash flow-based valuation is more theoretically robust than P/E- based (profit-based) methods.
B). It gives an estimate of the likely shareholder value that will be created - True. Discounting forecast cash flows to equity gives a direct estimate of the present value of future benefits to shareholders, i.e. shareholder value. A P/E multiple is more of a relative/comparative shortcut.
D). It incorporates the time value of money - True. DCF explicitly discounts future cash flows back to present value at the cost of equity. A simple P/E multiple does not explicitly model timing.
Not correct:
C - DCF is more complex, not simpler.
E - You still need long-term growth assumptions (terminal value), so it does not avoid growth forecasting problems.
NEW QUESTION # 84
The directors of the following four entities have been discussing dividend policy:
Which of these four entities is most likely to have a residual dividend policy?
Answer: B
NEW QUESTION # 85
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