QUESTION: 57

If a company's bonds are currently yielding 8% in the marketplace, why would the entity's cost of debt be lower than this?

There should be no difference; the cost of debt is the same as the bond's market yield.
Interest is deductible for tax purposes.
The company's credit rating has changed.
Market interest rates have decreased.

Answer(s): B

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A company is owned by its five directors who want to sell the business.

Current profit after tax is $750,000.

The directors are currently paid minimal salaries, taking most of their incomes as dividends.

After the company is sold, directors' salaries will need to be increased by $50,000 each year in total.

A suitable Price/Earnings (P/E) ratio is 7, and the rate of corporate tax is 20%.

What is the value of the company using a P/E valuation?

$4,900,000
$5,250,000
$5,530,000
$4,970,000

Answer(s): D

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QUESTION: 59

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?

$0.03 increase
$0.07 fall
$0.16 increase
$0.14 increase

Answer(s): A

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QUESTION: 60

Which THREE of the following non-financial objectives would be most appropriate for a listed company in the food retailing industry?

Reduce customer complaints
Increase customer service quality
Reduce production time
Improve staff morale
Reduce raw material wastage

Answer(s): A,B,D

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QUESTION: 57

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QUESTION: 59

QUESTION: 60

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