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NEW QUESTION 135
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 136
A company has:
* A price/earnings (P/E) ratio of 10.
* Earnings of $10 million.
* A market equity value of $100 million.
The directors forecast that the company's P/E ratio will fall to 8 and earnings fall to $9 million.
Which of the following calculations gives the best estimate of new company equity value in $ million following such a change?
- A.
- B.
- C.
- D.
Answer: C
NEW QUESTION 137
Company M plans to bid for Company J.
Company M has 20 million shares in issue and a current share price of $10.00 before publicly announcing the planned takeover. Company J has 10 million shares in issue and a current share price of $4.00.
The directors of Company M are considering an all-share bid of 1 Company M shares for 2 Company J shares.
Synergies worth $20m are expected from the acquisition.
What is the likely change in wealth for Company M's shareholders (in total) if the bid is accepted?
Give your answer to the nearest $ million.
$ ? million
Answer:
Explanation:
8
NEW QUESTION 138
A company has undertaken a transaction with its shareholders which has had the following impact on its financial statements:
* Retained earnings has decreased
* Share capital has increased
* Earnings per share has decreased
* The book value of equity is unchanged
The company has undertaken a:
- A. rights issue.
- B. cash dividend.
- C. share repurchase.
- D. scrip dividend.
Answer: D
NEW QUESTION 139
A company's current earnings before interest and taxation are $5 million.
These are expected to remain constant for the forseeable future.
The company has 10 million shares in issue which currently trade at $3.60.
It also has a $10 million long term floating rate loan.
The current interest rate on this loan is 5%.
The company pays tax at 20%.
The company expects interest rates to increase next year to 6% and it's Price/Earnings (P/E) ratio to move to
9.5 times by the end of next year.
What percentage reduction in the share price will occur by the end of next year if the interest rate increase and the P/E movement both occur?
- A. Reduction of 1%
- B. Reduction of 5%
- C. Reduction of 0%
- D. Reduction of 7%
Answer: D
NEW QUESTION 140
Company X is based in Country A, whose currency is the A$.
It trades with customers in Country B, whose currency is the B$.
Company X aims to maintain its revenue from exports to Country B at 25% of total revenue.
Company A has the following forecast revenue:
The forecast revenue from Country B has assumed an exchange rate of A$1/B$2, that is A$1 = B$2.
If the B$ depreciates against the A$ by 10%, the ratio of revenue generated from Country B as a percentage of total revenue will:
- A. rise to 27.0%.
- B. rise to 30.3%.
- C. fall to 22.7%.
- D. fall to 23.3%.
Answer: D
NEW QUESTION 141
Company X is based in Country A, whose currency is the A$.
It trades with customers in Country B, whose currency is the B$.
Company X aims to maintain its revenue from exports to Country B at 25% of total revenue.
Company A has the following forecast revenue:
The forecast revenue from Country B has assumed an exchange rate of A$1/B$2, that is A$1 = B$2.
If the B$ depreciates against the A$ by 10%, the ratio of revenue generated from Country B as a percentage of total revenue will:
- A. rise to 27.0%.
- B. rise to 30.3%.
- C. fall to 22.7%.
- D. fall to 23.3%.
Answer: D
NEW QUESTION 142
A company's Board of Directors is considering raising a long-term bank loan incorporating a number of covenants.
The Board members are unsure what loan covenants involve.
Which THREE of the following statements regarding loan covenants are true?
- A. A covenant gives the financial institution the right but not the obligation to convert debt into equity in a case of non-compliance.
- B. A positive loan covenant would require the company to undertake specific actions.
- C. A loan covenant has no contractually binding obligations.
- D. A restrictive covenant prohibits the company from conducting certain actions without the approval of the lending institution.
- E. A financial covenant usually requires the company to adhere to specific financial conditions or targets.
Answer: B,D,E
NEW QUESTION 143
A company in country T is considering either exporting its product directly to customers in country P or establishing a manufacturing subsidiary in country P.
The corporate tax rate in country T is 20% and 25% tax depreciation allowances are available Which TIIRCC of the following would be considered advantages of establishing a subsidiary in country T?
- A. There are restrictions on companies wishing to remit profit from country P
- B. Year 1 tax depreciation allowances of 100% are available in country P.
- C. There are high customs cuties payable of products entering country P.
- D. There is a double tax treaty between country T and country P.
- E. The corporate tsx rate in country P is 40%.
Answer: B,C,D
NEW QUESTION 144
The Board of Directors of Company T is considering a rights issue to fund a new investment opportunity which has a zero NPV.
The Board of Directors wishes to explain to shareholders what the theoretical impact on their wealth will be as a result of different possible actions during the rights issue.
Which THREE of the following statements in respect of theoretical shareholder wealth are true?
- A. If the shareholders allow their rights to lapse (do nothing) there will be no impact on their wealth.
- B. If shareholders exercise their full rights there will be no impact on their wealth.
- C. If the shareholders only partially exercise their rights and allow the remainder to lapse there will be no impact on their wealth.
- D. If shareholders sell their entire rights entitlement there will be no impact on their wealth.
- E. If shareholders partially exercise their rights and sell the remaining rights entitlement there will be no impact on their wealth.
Answer: B,D,E
NEW QUESTION 145
A company's latest accounts show profit after tax of $20.0 million, after deducting interest of $5.0 million. The company expects earnings to grow at 5% per annum indefinitely.
The company has estimated its cost of equity at 12%, which is included in the company WACC of 10%.
Assuming that profit after tax is equivalent to cash flows, what is the value of the equity capital?
Give your answer to the nearest $ million.
$ ? million
Answer:
Explanation:
300, 300000000
NEW QUESTION 146
An unlisted company:
* Is owned by the original founder and member of their families.
* Is growing more rapidly than other companies in the same industry.
* Pays a fixed annual divided
Which of the following methods would be the most appropriate to value this company's equity?
- A. Asset based approach including intangibles.
- B. P/E ratio of a listed company in the same industry.
- C. Discounted cash flow analysis based on forecast future free cash flows.
- D. Divided valuation method.
Answer: C
NEW QUESTION 147
A national airline has made an offer to acquire a smaller airline in the same country.
Which of the following would be of most concern to the competition authorities?
- A. The board informed a major institutional shareholder about the proposed acquisition before informing other shareholders.
- B. After the acquisition the board propose to reduce the number of flight destinations from the country.
- C. The acquisition is likely to result in significant redundancies of staff currently working for the smaller airline.
- D. After the acquisition the board propose to increase prices significantly on routes where no other airlines operate.
Answer: D
NEW QUESTION 148
A company has in a 5% corporate bond in issue on which there are two loan covenants.
* Interest cover must not fall below 3 times
* Retained earnings for the year must not fall below $3.5 million
The Company has 200 million shares in issue.
The most recent dividend per share was $0.04.
The Company intends increasing dividends by 10% next year.
Financial projections for next year are as follows:
Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?
- A. The company will be in compliance with both covenants.
- B. The company will be in breach of both covenants.
- C. The company will breach the covenant in respect of retained earnings only.
- D. The company will be in breach of the covenant in respect of interest cover only.
Answer: C
NEW QUESTION 149
At the last financial year end, 31 December 20X1, a company reported:
The corporate income tax rate is 30% and the bank borrowings are subject to an interest cover covenant of 4 times.
The results are presently comfortably within the interest cover covenant as they show interest cover of 8.3 times. The company plans to invest in a new product line which is not expected to affect profit in the first year but will require additional borrowings of $20 million at an annual interest rate of 10%.
What is the likely impact on the existing interest cover covenant?
- A. Interest cover would reduce to 3 times and the covenant would be breached.
- B. Interest cover would reduce to 3 times and the covenant would NOT be breached.
- C. Interest cover would reduce to 5 times and the covenant would NOT be breached.
- D. Interest cover would reduce to 5 times and the covenant would be breached.
Answer: C
NEW QUESTION 150
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.
Answer:
Explanation:
NEW QUESTION 151
Two listed companies in the same industry are joining together through a merger.
What are the likely outcomes that will occur after the merger has happened?
Select ALL that apply.
- A. Cost savings from synergistic benefits and economies of scale.
- B. Decrease in employee motivation due to internal changes.
- C. Competition authorities step in to stop a potential price monopoly.
- D. Increase in customer base.
- E. Changes to supplier relationships owing to internal changes.
Answer: A,B,D,E
NEW QUESTION 152
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