CIMA F3 - Financial Strategy

A listed company has recently announced a profit warning.

 

The company's share price fell 20% on the day of the announcement but had been fairly static in the weeks leading up to the announcement.

 

Which form of efficient market is most likely to be indicated by this share price movement?

Which of the following statements about the tax impact on debt finance is correct?

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 has:

   • 10 million $1 ordinary shares in issue 

   • A current share price of $5.00 a share

   • A WACC of 15%

The company holds $10 million in cash. No interest is earned on this cash.

It will invest this in a project with an expected NPV of $4 million.

 

In a semi-strong efficient stock market, which of the following is the most likely share price immediately after the announcement of the new investment?

Company A has made an offer to take over all the shares in Company B on the following terms:

   • For every 20 shares currently held, Company B's shareholders will receive $100 bond with a coupon rate of 3%

   • The bond will be repaid in 10 years' time at its par value of $100.

   • The current yield on 10 year bonds of similar risk is 6%.

What is the effective offer price per share being made to Company B's shareholders?

A listed company is planning a share repurchase. 

 

The following data applies:

   • There are 10 million shares in issue

   • The  share repurchase will involve buying back 20% of the shares at a price of $0.75

   • The company is holding $2 million cash

   • Earnings for the current year ended are $2 million

 

The Directors are concerned about the impact that this repurchase programme will have on the company's cash balance and current year earnings per share (EPS) ratio.

 

Advise the directors which of the following statements is correct?

Company AD is planning to acquire Company DC. It is evaluating two methods of structuring the terms of the bid, which will be ether a debt-funded cash offer or a share exchange

The following Information is relevant

• The two companies are of similar size and in related industries

• AB's gearing ratio measured as debt to debt plus equity, is currently 30% based on market values. This Is the company's optimum capital structure set to reflect the risk appetite of shareholders.

• The combined company is expected to generate savings and synergies

Which THREE of the following are advantages to AB's shareholders of a debt-funded cash offer compared with a share exchange?

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?

Company A, a listed company, plans to acquire Company T, which is also listed.

 Additional information is:

   • Company A has 150 million shares in issue, with market price currently at $7.00 per share.

   • Company T has 120 million shares in issue,. with market price currently at $6.00 each share.

   • Synergies valued at $50 million are expected to arise from the acquisition.

   • The terms of the offer will be 2 shares in A for 3 shares in T.

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.

Which THREE of the following are the most likely exit routes that apply to a venture capitalist?