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| Section | Weight | Objectives |
|---|---|---|
| Topic 1: Business valuation | 40% | - Corporate finance and valuation
|
| Topic 2: Financial policy decisions | 15% | - Formulation of financial strategy
|
| Topic 3: Sources of long-term funds | 25% | - Financing and dividend decisions
|
| Topic 4: Financial risks | 20% | - Managing financial risks
|
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NEW QUESTION # 303
D has US$10 million to invest over 12 months in either USS or GBP Its options are to invest in USS at the present USS interest rate of 10 18%. or to convert the USS to GBP at the spot rate GBP1 =US$1 61 and invest in GBP at an interest rate of 6.4%.
According to the interest rate parity theory, what will the one year forward rate be?
Give your answer to three decimal places.
Answer:
Explanation:
1.667
Use covered interest rate parity:F=S×1+r$1+r\£F = S \times \frac{1+r_{\$}}{1+r_{\£}}F=S×1+r\£1+r$ Spot rate S=1.61S = 1.61S=1.61 US$/£US$ interest rate r$=10.18%=0.1018r_{\$} = 10.18\% = 0.1018r$=10.
18%=0.1018GBP interest rate r\£=6.4%=0.064r_{\£} = 6.4\% = 0.064r\£=6.4%=0.064F=1.61×1.10181.064#1.
61×1.0355#1.667F = 1.61 \times \frac{1.1018}{1.064} \approx 1.61 \times 1.0355 \approx 1.667F=1.61×1.
0641.1018#1.61×1.0355#1.667 Answer (to three decimal places):GBP1 = US$1.667\boxed{\text{GBP1 = US\$1.667}}GBP1 = US$1.667
NEW QUESTION # 304
A company plans to raise $12 million to finance an expansion project using a rights issue.
Relevant data:
* Shares will be offered at a 20% discount to the present market price of $15.00 per share.
* There are currently 2 million shares in issue.
* The project is forecast to yield a positive NPV of $6 million.
What is the yield-adjusted Theoretical Ex-Rights Price following the announcement of the rights issue?
Answer: C
Explanation:
Explanation
Calc_Set3
NEW QUESTION # 305
Company C has received an unwelcome takeover bid from Company P.
Company P is approximately twice the size of Company C based on market capitalisation.
Although the two companies have some common business interests, the main aim of the bid is diversification for Company P.
The offer from Company P is a share exchange of 2 shares in Company P for 3 shares in Company C.
There is a cash alternative of $5.50 for each Company C share.
Company C 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. All prices are in $.
Which of the following would be the most appropriate action by Company C's directors following receipt of this hostile bid?
Answer: C
NEW QUESTION # 306
Company AD is planning to acquire Company DC. It is evaluating two methods of structuring the terms of the bid, which will be ether a debt-funded cash offer or a share exchange
The following Information is relevant
* The two companies are of similar size and in related industries
* AB's gearing ratio measured as debt to debt plus equity, is currently 30% based on market values. This Is the company's optimum capital structure set to reflect the risk appetite of shareholders.
* The combined company is expected to generate savings and synergies
Which THREE of the following are advantages to AB's shareholders of a debt-funded cash offer compared with a share exchange?
Answer: D
NEW QUESTION # 307
A company gas a large cash balance but its directors have been unable to identify any positive NPV projects to invest in.
Which THREE of the following are advantages of a share repurchase, compared with a one-off large dividend?
Answer: A,C,D
Explanation:
A). The shareholder can choose whether to take the cash or not.
With a repurchase, shareholders can decide to sell (take cash) or keep their shares. A one-off dividend forces all shareholders to receive cash.
C). It means that the company will be able to pay lower total dividends in the future.
After a buyback there are fewer shares in issue. If the company keeps the same dividend per share, the total dividend outlay falls - good for future cash flow and flexibility.
E). It will not create an expectation for future increased dividends.
A large one-off dividend may be interpreted as a permanent increase, creating pressure to maintain higher payouts. A buyback is seen as a more one-off, discretionary event, so it avoids that expectation.
B is wrong: a repurchase reduces, not increases, shares in issue.
D is not an advantage relative to a dividend - both methods return cash that shareholders can spend as they wish.
NEW QUESTION # 308
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