A company is wholly equity funded. It has the following relevant data: * Dividend just paid $4 million * Dividend growth rate is constant at 5% * The risk free rate is 4% * The market premium is 7% * The company's equity beta factor is 1.2Calculate the value of the company using the Dividend Growth Model.Give your answer in $ million to 2 decimal places.million
Answer(s): A
Company P is a pharmaceutical company listed on an alternative investment market. The company is developing a new drug which it hopes to market in approximately six years' time. Company P is owned and managed by a group of doctors who wish to retain control of the company. The company operates from leased laboratories with minimal fixed assets. Its value comes from the quality of its research staff and their research. The company currently has one approved drug which generates sufficient cashflow to cover day to day operations but not sufficient for major new research and development. Company P wish to raise debt finance to develop the new drug.Recommend which of the following types of debt finance would be most appropriate for Company P to help finance the development of this new drug.
Answer(s): D
A listed company follows a policy of paying a constant dividend. The following information is available: * Issued share capital (nominal value $0.50) $60 million * Current market capitalisation $480 million The shareholders are requesting an increased dividend this year as earnings have been growing. However, the directors wish to retain as much cash as possible to fund new investments. They therefore plan to announce a 1-for-10 scrip dividend to replace the usual cash dividend.Assuming no other influence on share price, what is the expected share price following the scrip dividend?Give your answer to 2 decimal places.
A company's Board of Directors is assessing the likely impact of financing new projects by using either debt or equity finance. The impact of using debt or equity finance on some key variables is uncertain.Which THREE of the following statements are true?
Answer(s): A,B,E
An all-equity financed company currently generates total revenue of $50 million. Its current profit before interest and taxation (PBIT) is $10 million. Due to difficult trading conditions, the company expects its total revenue to be constant next year, although some margins will reduce. It forecasts next year's PBIT will fall to 18% on 40% of its revenue, but that the PBIT on the other 60%of its revenue will be unaffected. The rate of corporate tax is 20%.What is the forecast percentage reduction in next year's Earnings?
Answer(s): C
Company B is an all equity financed company with a cost of equity of 10%. It is considering issuing bonds in order to achieve a gearing level of 20% debt and 80% equity. These bonds will pay a coupon rate of 5% and have an interest yield of 6%. Company B pays corporate tax at the rate of 25%.According to Modigliani and Miller's theory of capital structure with tax, what will be Company B's new cost of equity? A)B)C)D)
Answer(s): B
A company is considering whether to lease or buy an asset. The following data applies: * The bank will charge interest at 7.14% per annum * The asset will cost $1 million * Tax-allowable depreciation is available on a straight line basis over 5 years * There is no residual value * Corporate tax is paid at 30% in the year when the profit is earnedWhat is the NPV of the buy option?Give your answer to the nearest $000.
A company is concerned about the interest rate that it will be required to pay on a planned bond issue. It is considering issuing bonds with warrants attached.Advise the directors which of the following statements about warrants is NOT correct?
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