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F3 Financial Strategy Questions 89–96 (page: 13)

Extracts from a company's profit forecast for the next financial year as follows:

Since preparing the forecast, the company has decided to return surplus cash to shareholders by a share repurchase arrangement. The share repurchase would result in the company purchasing 20% of the 1,250 million ordinary shares currently in issue and canceling them.
Assuming the share repurchase went ahead, the impact on the company's forecast earnings per share will be an increase of:

A company has undertaken a transaction with its shareholders which has had the following impact on its financial statements:   
* Retained earnings has decreased   
* Share capital has increased   
* Earnings per share has decreased   
* The book value of equity is unchanged
The company has undertaken a: 

Company J plans to acquire Company K, an unlisted company whose equity is to be valued using a P/E ratio approach.  A listed company has been identified which is very similar to Company K and which can be used as a proxy. However, the growth prospects of Company K are higher than those of the proxy. The Directors of Company J are aware that certain adjustments will be necessary to the proxy company's P/E ratio in order to obtain a more reliable valuation.  
The following adjustments have been agreed:   
* 20% due to Company K being unlisted.   
* 15% to allow for the growth rate difference.
The total adjustment to the proxy p/e ratio is:

Company AB was established 6 years ago by two individuals who each own 50% of the shares. Each individual heads a separate division within the company, which now has annual turnover of GBP10 million and employs 40 people. Some of the employees are very highly paid as they are important contributors to the company's profitability. The owners of the company wish to realise the full value of their investment within the next 12 months.
Which TWO of the following options are most likely to be acceptable exit strategies to the two owners of the company?

Which THREE of the following are likely to be strategic reasons for a horizontal acquisition?

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:

A company is currently all-equity financed with a cost of equity of 8%.  It plans to raise debt with a pre-tax cost of 4% in order to buy back equity shares. After the buy-back, the debt-to-equity ratio at market values will be 1 to 2. The corporate income tax rate is 30%.
Which of the following represents the company's cost of equity after the buy-back according to Modigliani and Miller's Theory of Capital Structure with taxes?

A is a listed company. Its shares trade on a stock market exhibiting semi-strong form efficiency.
Which of the following is most likely to increase the wealth of A's shareholders?