A company has a loss-making division that it has decided to divest in order to raise cash for other parts of the business. The losses stem from a combination of a lack of capital investment and poor divisional management. The loss-making division would require new capital investment of at least $20 million in order to replace worn out and obsolete assets. If this investment was carried out, the present value of the future cashflows, excluding the investment expenditure, is expected to be $15 million.Which TWO of the following divestment methods are most likely to be suitable for the company?
Answer(s): C,D
Company A has made an offer to take over all the shares in Company B on the following terms: * For every 20 shares currently held, Company B's shareholders will receive $100 bond with a coupon rate of 3% * The bond will be repaid in 10 years' time at its par value of $100. * The current yield on 10 year bonds of similar risk is 6%.What is the effective offer price per share being made to Company B's shareholders?
Answer(s): C
An entity prepares financial statements to 30 June. During the year ended 30 June 20X2 the following events occurred:1 July 20X1 * The entitiy borrowed $100 million at a variable rate of interest. * In order to protect itself against the variability of its interest cashflows, the entity entered into a pay-fixed-receive-variable interest swap with annual settlements. The fair value of the swap on this date was zero. 30 June 20X2 * The entity received a net settlement of $2 million under the swap. After this net settlement, the fair value of the swap was $5 million - a financial asset. The entity decides to use hedge accounting for this arrangement and has designated it as a cash flow hedge. The swap is a perfect hedge of the variability of the cash interest payments.Which of the following describes the treatment of the settlement and the change in the fair value of the swap in the statement of profit or loss and other comprehensive income for the year ended 30 June 20X2?
An entity prepares financial statements to 31 December each year. The following data applies:1 December 20X0 * The entity purchased some inventory for $400,000. * In order to protect the inventory against adverse changes in fair value the entity entered into a futures contract to sell the inventory for a fixed price on 31 January 20X1. * The entity designated this contract as a fair value hedge of the value of the inventory. 31 December 20X0 * The inventory had a fair value of $480,000 and the futures contract had a fair value of $75,000 (a financial liability).What will be the impact on the statement of profit or loss and other comprehensive income for the year ended 31 December 20X0 in respect of the change in the value of the inventory and the futures contract?
Company A is proposing a rights issue to finance a new investment. Its current debt to equity ratio is 10%.Which TWO of the following statements are true?
Answer(s): C,E
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?
Answer(s): A,C
Company M is a listed company in a highly technical service industry. The directors are considering making a cash offer for the shares in Company Q, an unquoted company in the same industry.Relevant data about Company Q: * The company has seen consistent growth in earnings each year since it was founded 10 years ago. * It has relatively few non-current assets. * Many of the employees are leading experts in their field. A recent exercise suggested that the value of the company's human capital exceeded the value of its tangible assets. The directors and major shareholders of Company Q have indicated willingness to sell the company. Before negotiations become too advanced, the directors of Company M are considering the benefits to their company that would follow the acquisition.Which THREE of the following are the most likely benefits of the acquisition to Company M's shareholders?
Answer(s): A,D,E
Company A plans to acquire a minority stake in Company B. The last available share price for Company B was $0.60. Relevant data about Company B is as follows: * A dividend per share of $0.08 has just been paid * Dividend growth is expected to be 2% * Earnings growth is expected to be 4% * The cost of equity is 15% * The weighted average cost of capital is 13%Using the dividend growth model, what would be the expected change in share price?
Answer(s): A
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