CIMA F3 - Financial Strategy

The following information relates to Company ZZA's current capital structure:

Company ZZA is considering a change in the capital structure that will increase gearing to 35:65 (Debt Equity).

The risk-free rate is 4% and the return on the market portfolio is expected to be 12%.

The rate of corporate tax is 25%

Using the Capital Asset Pricing Model, calculate the cost of equity resulting from the proposed change to the capital structure.

Company A plans to acquire Company B in a 1-for-1 share exchange.

Pre-acquisition information is as follows:

 

 

Post-acquisition information is as follows:

Annual earnings are expected to increase by $4 million.

The P/E multiple of the combined company is expected to be 12 times.

 

If the acquisition proceeds, what is the expected percentage increase in the post acquisition share price of Company A?  

Which THREE of the following would be most important if a hospital wishes to review the effectiveness of its services?

Which THREE of the following are considered in detail in IFRS 7 Financial Instruments: Disclosures?

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 company has just received a hostile bid.  Which of the following response strategies could be considered?

Company XXY operates in country X with the X$ as its currency. It is looking to acquire company ZZY which operates in country Z with the Z$ as its currency.

The assistant accountant at Company XXY has started to prepare an initial valuation of Company ZZY's equity for the first 3 years, however their valuation is incomplete. TBC' in the table below indicates that her calculations have yet to be completed.

The following information is relevant:

What is the correct figure (to the nearest million S) to include in year 3 as the present value in X$ million?

A company's Board of Directors is assessing the likely impact of financing new projects by using either debt or equity finance.

The impact of using debt or equity finance on some key variables is uncertain.

 

Which THREE of the following statements are true?

A company plans to raise S15 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 S12 50 per share

• There are currently 3 million shares in issue

• The project is forecast to yield a positive NPV of $9 million

What is the yield-adjusted Theoretical Ex-Rights Price following the announcement of the rights issue?

The two founding directors of an unlisted geared company want to establish its value as they are intending to approach a venture capitalist for additional funding.

The funding will be used to invest in a major new project which has very high growth potential. The directors intend to sell 10% of the company to the venture capitalist They have prepared the following current valuation of the company using the divided valuation model:

The following information is relevant.

• $60,000 is the most recent dividend paid.

• 4% is the average dividend growth over the last few years.

• 10% is an estimate of the company's cost of equity using the CAPM model with the industry average asset beta

Which THREE of the following are weaknesses of the valuation method used in these circumstances?