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NEW QUESTION 67
Which of the following explains an aim of integrated reporting in accordance with The International <IR> Framework as issued by the International Integrated Reporting Council?
- A. To highlight the need for greater reporting of performance to stakeholders in a greater level of detail than at present.
- B. To highlight the separation of strategy, governance and financial performance in a social, environmental and economic context.
- C. To integrate the various accepted accounting practices of member bodies into a single, unified code of accounting principles.
- D. To support decision making and actions that focus on creating value over the short, medium and long term.
Answer: D
NEW QUESTION 68
A company's annual dividend has grown steadily at an annual rate of 3% for many years. It has a cost of equity of 11%. The share price is presently $64.38.
The company is about to announce its latest dividend, which is expected to be $5.00 per share.
The Board of Directors is considering an attractive investment opportunity that would have to be funded by reducing the dividend to $4.50 per share. The board expects the project to enable future dividends to grow by
5% every year and the cost of equity to remain unchanged.
Calculate the change in share price, assuming that the directors announce their intention to proceed with this investment opportunity.
Give your answer to 2 decimal places.
$ ?
Answer:
Explanation:
14.37
NEW QUESTION 69
A manufacturing company is based in Country L whose currency is the L$.
One of the company's products is exported to Country M, a rapidly growing economy, whose currency is the M$.
In the most recent financial year:
* 100,000 units of the product were sold to customers in country M
* The unit selling price was M$12
The spot rate today is L$1 = M$5
The company has an objective of growth in total sales value in L$ of 10% a year.
If the L$ strengthens by 5% next year against the M$, what volume of sales of this product is needed next year to achieve the objective?
- A. 115,500 units
- B. 110,000 units
- C. 104,500 units
- D. 105,000 units
Answer: A
NEW QUESTION 70
A project requires an initial outlay of $2 million which can be financed with either a bank loan or finance lease.
The company will be responsible for annual maintenance under either option.
The tax regime is:
* Tax depreciation allowances can be claimed on purchased assets.
* If leased using a finance lease, tax relief can be claimed on the interest element of the lease payments and also on the accounting depreciation charge.
The trainee management accountant has begun evaluating the lease versus buy decision and has produced the following data. He is not confident that all this information is relevant to this decision.
Using only the relevant data, which of the following is correct?
- A. The bank loan is $30,000 MORE expensive than the finance lease.
- B. The bank loan is $20,000 LESS expensive than the finance lease.
- C. The bank loan is $120,000 LESS expensive than the finance lease.
- D. The bank loan is $70,000 LESS expensive than the finance lease.
Answer: D
NEW QUESTION 71
M is an accountant who wishes to take out a forward rate agreement as a hedging instrument but the company treasurer has advised that a short-term interest rate future would be a better option.
Which of the following is true of a short-term interest rate future?
- A. It must be kept for ne whole duration of the contract
- B. The date is flexible and the position can be closed quickly and easily.
- C. It can be tailored to the exact reeds of the company.
- D. It interest rates have gone down the price of the future will have fallen.
Answer: A
NEW QUESTION 72
A profitable company wishes to dispose of a loss-making division that generated negative free cashflow in the last financial year.
The division requires significant new investment to return it to profitability.
Which of the following valuation approaches is likely to be the most useful to the company when negotiating the sales price?
- A. Discounted forecast free cashflow
- B. Asset basis
- C. Dividend growth model
- D. P/E ratio applied to forecast earnings next year
Answer: A
NEW QUESTION 73
AA is considering changing its capital structure. The following information is currently relevant to AA:
The gearing rating raising the new debt finance will be 50%.
Which THREE of the following statement about the impact of AA's change in capital structure are true under Modigliani and Miler's capital structure theory with tax.
- A. The cost of debt remain unchanged at 4%
- B. The WACC will decrease below 7.6%
- C. The cost of equity will increase above 10%
- D. The cost of debt will increase above 4%
- E. The WACC increase above 7.6
- F. The cost of equity will decrease below 10%
Answer: B,E
NEW QUESTION 74
A company needs to raise $40 million to finance a project. It has decided on a right issue at a discount of 20% to its current market share price.
There are currently 20 million shares in issue with a nominal value of $1 and a market price of $10.00 per share.
- A. 1 new share for every 25 existing shares
- B. 1 new share for every 4 existing shares
- C. 1 new share for every 20 existing shares
- D. 1 new share for every 5 existing shares
Answer: B
NEW QUESTION 75
A company is valuing its equity prior to an initial public offering (IPO).
Relevant data:
* Earnings per share $1.00
* WACC is 8% and the cost of equity is 12%
* Dividend payout ratio 40%
* Dividend growth rate 2% in perpetuity
The current share price using the Dividend Valuation Model is closest to:
- A. $4.08
- B. $6.80
- C. $4.00
- D. $6.12
Answer: A
NEW QUESTION 76
A company wishes to raise new finance using a rights issue to invest in a new project offering an IRR of 10% The following data applies:
* There are currently 1 million shares in issue at a current market value of $4 each.
* The terms of the rights issue will be $3.50 for 1 new share for 5 existing shares.
* The company's WACC is currently 8%.
What is the yield-adjusted theoretical ex-rights price (TERP)?
Give your answer to 2 decimal places.
Answer:
Explanation:
$ ?
4.06, 4.060
NEW QUESTION 77
A company has accumulated a significant amount of excess cash which is not required for investment for the foreseeable future.
It is currently on deposit, earning negligible returns.
The Board of Directors is considering returning this excess cash to shareholders using a share repurchase programme.
The majority of shareholders are individuals with small shareholdings.
Which THREE of the following are advantages of the company undertaking a share repurchase programme?
- A. The earnings per share should increase for the shareholders who do not sell their shares.
- B. Institutional investors generally prefer a constant predictable income in the form of dividends.
- C. Individual shareholders can realise their investment if they wish.
- D. It reduces excess cash which might have been attractive to predators.
- E. It reduces the amount of cash for potential future investment opportunities.
Answer: A,C,D
NEW QUESTION 78
Companies A, B, C and D:
* are based in a country that uses the K$ as its currency.
* have an objective to grow operating profit year on year.
* have the same total levels of revenue and cost.
* trade with companies or individuals in the eurozone. All import and export trade with companies or individuals in the eurozone is priced in EUR.
Typical import/export trade for each company in a year are as follows:
Which company's growth objective is most sensitive to a movement in the EUR/K$ exchange rate?
- A. Company B
- B. Company A
- C. Company C
- D. Company D
Answer: A
NEW QUESTION 79
A venture capitalist invests in a company by means of buying:
* 9 million shares for $2 a share and
* 8% 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 10 million shares in issue.
What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?
Give your answer to the nearest $ million.
$ million.
Answer:
Explanation:
34, 35,
34000000, 35000000
NEW QUESTION 80
Company A, a listed company, plans to acquire Company T, which is also listed.
Additional information is:
* Company A has 100 million shares in issue, with market price currently at $8.00 per share.
* Company T has 90 million shares in issue,. with market price currently at $5.00 each share.
* Synergies valued at $60 million are expected to arise from the acquisition.
* The terms of the offer will be 2 shares in A for 3 shares in B.
Assuming the offer is accepted and the synergies are realised, what should the post-acquisition price of each of Company A's shares be?
Give your answer to two decimal places.
$ ? .
Answer:
Explanation:
8.19, 8.18
NEW QUESTION 81
A company has a covenant on its 5% long-term bond, stipulating that its retained earnings must not fall below
$2 million.
The company has 100 million shares in issue.
Its most recent dividend was $0.045 per share. It has committed to grow the dividend per share by 4% each year.
The nominal value of the bond is $60 million. It is currently trading at 80% of its nominal value.
Next year's earnings before interest and taxation are projected to be $11.25 million.
The rate of corporate tax is 20%.
If the company increases the dividend by 4%, advise the Board of Directors if the level of retained earnings will comply with the covenant?
- A. Covenant is breached as retained earnings = $1.92 million.
- B. Covenant is not breached as retained earnings = $2.40 million.
- C. Covenant is not breached as retained earnings = $2.10 million.
- D. The covenant is not breached as retained earnings = $4.68 million.
Answer: A
NEW QUESTION 82
A private company manufactures goods for export, the goods are priced in foreign currency B$.
The company is partly owned by members of the founding family and partly by a venture capitalist who is helping to grow the business rapidly in preparation for a planned listing in three years' time.
The company therefore has significant long term exposure to the B$.
This exposure is hedged up to 24 months into the future based on highly probable forecast future revenue streams.
The company does not apply hedge accounting and this has led to high volatility in reported earnings.
Which of the following best explains why external consultants have recently advised the company to apply hedge accounting?
- A. To make it easier for the market to value the business when it is listed on the Stock Exchange.
- B. To provide a more appropriate earnings figure for use in calculating the annual dividend.
- C. To fully adopt IFRS in preparation for listing the company.
- D. To ensure that the venture capitalist receives regular annual returns on its investment.
Answer: A
NEW QUESTION 83
Z wishes to borrow at a floating rate and has been told that it can use swaps to reduce the effective interest rate it pays. Z can borrow floating at Libor ' 1, and fixed at 10%.
Which of the following companies would be the most appropriate for Z to enter into a swap with?
- A. Company A - it can borrow floating L +1 1/2 and fixed at 9.5%
- B. Company C - it can borrow at L +1 1/2 and fixed at 9%
- C. Company E - it can borrow floating at L +1 1/2 and fixed at 12%
- D. Company D - it can borrow at L +1 1/2 and fixed at 10.5%
Answer: B
NEW QUESTION 84
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