QUESTION: 105

FGH plans to issue a large number of shares to the public via an IPO. It is considering either an offer for sale at a fixed price or an offer for sale by tender.
Which of the following would be an advantage to FGH of using the offer for sale by tender compared to the fixed price offer?

The shares will be sold to different investors at differing values thus maximising the capital raised.
There would be more certainty over the issue price of the shares.
There is potential for reaching a higher share price thus maximising capital raised.
Tenders are more attractive to less sophisticated investors thus maximising potential investment.

Answer(s): C

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QUESTION: 106

XY has in issue a 6% convertible bond which is redeemable at par or convertible into equity shares in one year's time. The conversion terms are 20 equity shares for each $100 of convertible bond. The conversion value in one year's time is expected to be $105 per $100 nominal of the bond based on the current share price of $5.25.
Which of the following statements about the bond is correct?

The yield to maturity of the convertible bond is a constant 6%.
The bond will be converted into equity shares in one year's time if the share price does not change.
XY's post tax cost of debt for the convertible bond will be higher than the yield to maturity.
If the bond is redeemed rather than converted that means that the investor will receive $105 for each $100 of nominal value.

Answer(s): B

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QUESTION: 107

CORRECT TEXT
CD has 200,000 equity shares with a current market value of $2.50 each. The annual dividend of $0.50 a share is about to be paid.
CD also has redeemable debt with a nominal value of $100,000. This is currently trading at $90 for each $100 of nominal value.
The cost of equity is 20% and the post tax cost of debt is 6%.
What is CD's weighted average cost of capital?
Give your answer in % to one decimal place.

17.4, 17.42, 17.43, 17.40

Answer(s): A

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QUESTION: 108

Which TWO of the following are TRUE in respect of preparing a consolidated statement of cash flows where there has been an acquisition of a subsidiary part way through the year?

Investing activities will include a total cash outflow for the acquisition comprising the cash paid for the subsidiary less the cash held by the subsidiary at the acquisition date.
The working capital held by the subsidiary at acquisition will be excluded from the year end figures based on the percentage shareholding in the subsidiary.
Non-controlling interest will arise in relation to the subsidiary and any dividends paid to the non- controlling interest will be shown within financing activities as a cash outflow.
Any shares that were issued on acquisition of the subsidiary will be shown separately on the statement of cash flows within financing activities.
The year end cash and cash equivalents balance will be reduced by the cash and cash equivalents that were held by the subsidiary at the acquisition date.

Answer(s): A,C

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QUESTION: 105

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QUESTION: 108