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| Section | Weight | Objectives |
|---|---|---|
| Financial Risk Management and Treasury | 10% | - Risk management techniques
|
| Corporate Finance | 30% | - Financing decisions
|
| Investment Appraisal and Decisions | 25% | - Investment evaluation techniques
|
| Mergers, Acquisitions and Business Valuation | 10% | - Valuation and deal structure
|
| Financial Strategy Framework | 25% | - Financial objectives and stakeholder value
|
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NEW QUESTION # 88
A large, listed company is planning a major project that should greatly improve its share price in the long term.
These plans require a significant capital cost that the company plans to finance by debt.
All of the debt options being considered are for the same duration of time.
Which of the following sources of debt finance is likely to be the most expensive for the company over the full term of the debt?
Answer: D
Explanation:
All the options are debt with the same maturity, but convertible bonds include an equity conversion option for investors. Because of that option, the coupon rate at issue is usually lower than on straight bonds or bank loans. However, CIMA F3 emphasises that if the company's share price is expected to rise significantly (as in this question, where the project should greatly improve the share price), holders are very likely to convert.
When conversion happens, the company settles the debt by issuing shares that, at that point, are worth much more than the original debt value. The effective total cost of finance (interest paid plus the value of equity given up) can end up higher than for ordinary bonds, leases, or bank loans over the full term.
Therefore, given the expectation of a strong future share price, the source of debt finance likely to be most expensive over the full term is:
NEW QUESTION # 89
Company A is planning to acquire Company B by means of a cash offer. The directors of Company B are prepared to recommend acceptance if a bid price can be agreed. Estimates of the net present value (NPV) of future cash flows for the two companies and the combined group post acquisition have been prepared by Company A's accountant. There are as follows:
What is the maximum price that Company A should offer for the shares in Company B?
Give your answer to the nearest $ million
Answer:
Explanation:
150
Company A (stand-alone): 250m
Company B (stand-alone): 125m
Combined group: 400mIncrease in value available to A's shareholders from doing the deal:Gain=400#250=150 million\text{Gain} = 400 - 250 = 150
\text{ million}Gain=400#250=150 million If A pays price PPP for B, A's net gain = 150#P150 - P150#P.To ensure A's shareholders are no worse off, 150#P#0#P#150150 - P \ge 0 \Rightarrow P \le 150150#P#0#P#150.
So the maximum price A should offer is:Answer Q33: $150 million-Exhibit (54cae22f-961a-427a-8ad1-5d95bad9c7cf)-
NEW QUESTION # 90
A listed entertainment and media company produces and distributes films globally. The company invests heavily in intellectual property in order to create the scope for future film projects. The company has five separate distribution companies, each managed as a separate business unit The company is seeking to sell one of its business units in a management buy-out (MBO) to enable it to raise finance for proposed new investments The business unit managers have been in discussions with a bank and venture capitalists regarding the financing for the MBO The venture capitalists are only prepared to invest a mixture of debt and equity and have suggested the following:
The venture capitalists have stated that they expect a minimum return on their equity investment of 3Q°/o a year on a compound basis over the first 5 years of the MBO No dividends will be paid during this period.
Advise the MBO team of the total amount due to the venture capitalist over the 5-year period to satisfy their total minimum return?
Answer: D
NEW QUESTION # 91
A young, capital intensive company has a large amount of tangible assets.
Intangibles, including brand name, are considered to be of negligible value at this time Relevant data:
* The company operates a residual dividend policy.
* The industry in which the company operates is suffering from a large amount of uncertainty at present.
Forecasting the future earnings or cashflows of the company is therefore extremely difficult
* There are very few quoted companies in the industry that are similar in size or in precisely the same business sectors.
Which method of valuation would be most suitable for this company?
Answer: A
Explanation:
Correct answer: C - Net asset based valuation using replacement cost best suits a capital-intensive company with reliable tangible asset values and highly uncertain future earnings/cash flows.
NEW QUESTION # 92
Hospital X provides free healthcare to all members of the community, funded by the central Government.
Hospital Y provides healthcare which has to be paid for by the individual patients. It is a listed company, owned by a large number of shareholders.
In comparing the above two organisations and their objectives, which THREE of the following statements are correct?
Answer: A,D,E
NEW QUESTION # 93
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