F3 Exam Question 41
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
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
F3 Exam Question 42
A listed company plans to raise $350 million to finance a major expansion programme.
The cash flow projections for the programme are subject to considerable variability.
Brief details of the programme have been public knowledge for a few weeks.
The directors are considering two financing options, either a rights issue at a 20% discount to current share price or a long term bond.
The following data is relevant:
The company's share price has fallen by 5% over the past 3 months compared with a fall in the market of
3% over the same period.
The directors favour the bond option.
However, the Chief Accountant has provided arguments for a rights issue.
Which TWO of the following arguments in favour of a right issue are correct?
The cash flow projections for the programme are subject to considerable variability.
Brief details of the programme have been public knowledge for a few weeks.
The directors are considering two financing options, either a rights issue at a 20% discount to current share price or a long term bond.
The following data is relevant:
The company's share price has fallen by 5% over the past 3 months compared with a fall in the market of
3% over the same period.
The directors favour the bond option.
However, the Chief Accountant has provided arguments for a rights issue.
Which TWO of the following arguments in favour of a right issue are correct?
F3 Exam Question 43
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?
Which of the following companies would be the most appropriate for Z to enter into a swap with?
F3 Exam Question 44
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:
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:
F3 Exam Question 45
Company R is a well-established, unlisted, road freight company.
In recent years R has come under pressure to improve its customer service and has had some cusses in doing this However, the cost of improved service levels has resulted In it marketing small losses in its latest financial year. This is the forest time R has not been profitable.
R uses a' residual divided policy ad has paid dividends twice in the last 10 years.
Which of the following methods would be most appropriate for valuating R?
In recent years R has come under pressure to improve its customer service and has had some cusses in doing this However, the cost of improved service levels has resulted In it marketing small losses in its latest financial year. This is the forest time R has not been profitable.
R uses a' residual divided policy ad has paid dividends twice in the last 10 years.
Which of the following methods would be most appropriate for valuating R?