QUESTION: 29

Which of the following statements is true of a spin-off (or demerger)?

Raises finance to fund new projects.
Changes the ownership structure of the core entity by introducing new shareholders.
Allows investors to identify the true value of the demerged business.
Increases the risk of a takeover bid for the core entity.

Answer(s): C

A company based in Country D, whose currency is the D$, has an objective of maintaining an operating profit margin of at least 10% each year.

Relevant data:

· The company makes sales to Country E whose currency is the E$. It also makes sales to Country F whose currency is the F$.

· All purchases are from Country G whose currency is the G$.

· The settlement of all transactions is in the currency of the customer or supplier.

Which of the following changes would be most likely to help the company achieve its objective?

The D$ strengthens against the E$ over time.
The F$ weakens against the D$ over time.
The D$ strengthens against the G$ over time.
The D$ weakens against the G$ over time.

Answer(s): C

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QUESTION: 31

A company proposes to value itself based on the net present value of estimated future cash flows.

Relevant data:

· The cash flow for the next three years is expected to be £100 million each year

· The cash flow after year 3 will grow at 2% to perpetuity

· The cost of capital is 12%

The value of the company to the nearest $ million is:

$966 million
$1,260 million
$889 million
$834 million

Answer(s): A

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QUESTION: 32

Company A is a listed company that produces pottery goods which it sells throughout Europe. The pottery is then delivered to a network of self employed artists who are contracted to paint the pottery in their own homes. Finished goods are distributed by network of sales agents.The directors of Company A are now considering acquiring one or more smaller companies by means of vertical integration to improve profit margins.

Advise the Board of Company A which of the following acquisitions is most likely to achieve the stated aim of vertical integration?

A company in a similar market to Company
A pottery factory in the Middle East.
A company that produces accessories.
A listed international logistics firm.

Answer(s): D

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QUESTION: 29

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QUESTION: 32