Company Z has just completed the all-cash acquisition of Company A. Both companies operate in the advertising industry. The market considered the acquisition a positive strategic move by Company Z.Which THREE of the following will the shareholders of Company Z expect the company's directors to prioritise following the acquisition?
Answer(s): A,C,E
Company H is considering the valuation of an unlisted company which it hopes to acquire. It has obtained the target company's financial statements. Company H has been advised that the book value of net assets as shown in the financial statements of the target company does not provide a reliable indicator of their true value.Advise the Board of Directors which of the following THREE statements are disadvantages of the net asset basis of valuation?
Answer(s): A,C,D
Company P is a large unlisted food-processing company. Its current profit before interest and taxation is $4 million, which it expects to be maintainable in the future. It has a $10 million long-term loan on which it pays interest of 10%. Corporate tax is paid at the rate of 20%. The following information on P/E multiples is available:Which of the following is the best indication of the equity value of Company P?
Answer(s): D
A company's Board of Directors wishes to determine a range of values for its equity. The following information is available: Estimated net asset values (total asset less total liabilities including borrowings): * Net book value = $20 million * Net realisable value = $25 million * Free cash flows to equity = $3.5 million each year indefinitely, post-tax. * Cost of equity = 10% * Weighted Average Cost of Capital = 7%Advise the Board on reasonable minimum and maximum values for the equity.
Answer(s): A
The Board of Directors of a listed company wish to estimate a reasonable valuation of the entire share capital of the company in the event of a takeover bid. The company's current profit before taxation is $4.0 million. The rate of corporate tax is 25%. The average P/E multiple of listed companies in the same industry is 8 times current earnings. The P/E multiple of recent takeovers in the same industry have ranged from 9 times to 10 times current earnings. The average P/E multiple of the top 100 companies on the stock market is 15 times current earnings. Advise the Board of Directors which of the following is a reasonable estimate of a range of values of the entire share capital in the event of a bid being made for the whole company?
Answer(s): B
A company is considering either exporting its product directly to customers in a foreign country or establishing a manufacturing subsidiary in that country. The corporate tax rate in the company's own country is 20% and 25% tax depreciation allowances are available.Which THREE of the following would be considered advantages of establishing the subsidiary in the foreign country?
Answer(s): B,C,D
A company's annual dividend has grown steadily at an annual rate of 3% for many years. It has a cost of equity of 11%. The share price is presently $64.38.The company is about to announce its latest dividend, which is expected to be $5.00 per share.The Board of Directors is considering an attractive investment opportunity that would have to be funded by reducing the dividend to $4.50 per share. The board expects the project to enable future dividends to grow by 5% every year and the cost of equity to remain unchanged.Calculate the change in share price, assuming that the directors announce their intention to proceed with this investment opportunity.Give your answer to 2 decimal places.
A company is undertaking a lease-or-buy evaluation, using the post-tax cost of bank borrowing as the discount rate.Details of the two alternatives are as follows:Buy option: * To be financed by a bank loan * Tax depreciation allowances are available on a reducing-balance basis * Assets depreciated on a straight-line basis Lease option: * Finance lease * Maintenance to be paid by the lessee * Tax relief available on interest payments and book depreciationWhich THREE of the following are relevant cashflows in the lease-or-buy appraisal?
Answer(s): A,D,E
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