QUESTION: 85

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?

Dividend growth model
Asset basis
Discounted forecast free cashflow
P/E ratio applied to forecast earnings next year

Answer(s): C

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QUESTION: 86

A company has a covenant on its 5% long term corporate bond.

· Covenant - The earnings must not fall below $7 million

The bond has a nominal value of $60 million.

It is currently trading at 80% of its nominal value.

The projected earnings before interest and taxation for next year are $11.5 million.

The company retains 80% of its earnings. It pays tax at 20%.

Advise the Board of Directors which of the following covenant conditions will apply next year?

The earnings will be = $7.28 million (The covenant will not be breached).
The earnings will be = $11.50 million (The covenant will not be breached).
The earnings will be = $6.80 million (The covenant will be breached).
The earnings will be = $5.44 million (The covenant will be breached).

Answer(s): C

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QUESTION: 87

CORRECT TEXT

Company A is planning to acquire Company B.

Company A's managers think they can improve the performance of Company B to the extent that its own P/E ratio should be applied to Company B's earnings.

Relevant Data:

What is the expected synergy if the acquisition goes ahead?

Give your answer to the nearest $ million.

$8 million, $8000000

Answer(s): A

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QUESTION: 88

The International Integrated Reporting Council (IIRC) was formed in August 2010 and brings together a cross-section of representatives from a wide variety of business sectors.

The primary purpose of the IIRC's framework is to help enable an organsation to communicate how it:

minimises the environmental impact of its business processes.
creates value in the short, medium and long term.
contributes positively to the economic well being of the environment in which it operates.
ensures that the conflicting needs of different stakeholder groups are met in an optimal manner.

Answer(s): B

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QUESTION: 88