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| Section | Objectives |
|---|---|
| Topic 1: Financial Risk Management | - Interest rate risk - Foreign exchange risk |
| Topic 2: Sources of Long-Term Finance | - Hybrid financial instruments - Equity and debt financing |
| Topic 3: Dividend Policy | - Dividend theories - Dividend decisions and shareholder value |
| Topic 4: Mergers, Acquisitions and Corporate Restructuring | - Synergies and takeover strategies - Valuation principles |
| Topic 5: Financial Strategy Formulation | - Corporate financial planning - Strategic financial objectives |
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NEW QUESTION # 277
XYZ has a variable rate loan of $200 million on which it is paying interest of Liber ' 3%.
XYZ entered into a swap with AG bank to convert this to a fixed rate 8% loan. AB bank charges an annual commission of 0.4% for making this arrangement Calculate the net payment from KYZ to AB bank at the end of the first year if Libor was 2% throughout the year.
Give your answer in $ million, to one decimal place.
Answer:
Explanation:
22.8
NEW QUESTION # 278
A company has announced a rights issue of 1 new share for every 4 existing shares.
Relevant data:
* The current market price per share is $10.00.
* Rights are to be issued at a 20% discount to the current price.
* The rate of return on the new funds raised is expected to be 10%.
* The rate of return on existing funds is 5%.
What is the yield-adjusted theoretical ex-rights price?
Give your answer to two decimal places.
$ ?
Answer:
Explanation:
11.20, 11.2
NEW QUESTION # 279
Listed Company A has prepared a valuation of an unlisted company. Company B. to achieve vertical integration Company A is intending to acquire a controlling interest in the equity of Company B and therefore wants to value only the equity of Company B.
The assistant accountant of Company A has prepared the following valuation of Company B's equity using the dividend valuation model (DVM):
Where:
* S2 million is Company B's most recent dividend
* 5% is Company B's average dividend growth rate over the last 5 years
* 10% is a cost of equity calculated using the capital asset pricing model (CAPM), based on the industry average beta factor
Which THREE of the following are valid criticisms of the valuation of Company B's equity prepared by the assistant accountant?
Answer: B,C,E
Explanation:
B). Using present value of earnings (or free cash flows) is more appropriate when valuing a controlling interest, because the acquirer can change the dividend policy. #
C). A 5% historical dividend growth rate may not reflect future growth - assuming it will continue indefinitely is a big weakness. #
D). The industry average beta may not reflect Company B's specific financial (gearing) risk; it should ideally be adjusted to reflect B's capital structure. # The others:
A is incorrect - you should generally use the target's cost of equity (or project-specific) not Company A's.
E is incorrect - unlisted companies can use CAPM via proxy/industry betas.
NEW QUESTION # 280
A venture capitalist invests in a company by means of buying
* 6 million shares for $3 a share and
* 7% bonds with a nominal value of $2 million, repayable at par in 3 years' time The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment The company has 8 million shares in issue What is the minimum total equity value for the company in 3 years' time required to satisfy the venture capitalist's expected return?
Answer:
Explanation:
Give your answer to the nearest $ million
31
NEW QUESTION # 281
A company has a covenant on its 5% long term corporate bond.
* Covenant - The earnings must not fall below $7 million
The bond has a nominal value of $60 million.
It is currently trading at 80% of its nominal value.
The projected earnings before interest and taxation for next year are $11.5 million.
The company retains 80% of its earnings. It pays tax at 20%.
Advise the Board of Directors which of the following covenant conditions will apply next year?
Answer: D
NEW QUESTION # 282
......
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