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F3 Financial Strategy Questions 137–144 (page: 19)

A company is deciding whether to offer a scrip dividend or a cash dividend to its shareholders.  Although the company has excellent long-term growth prospects, it is experiencing short-term profit and cash flow problems.
Which of the following statements is most likely to be a reason for choosing the scrip dividend?

A venture capitalist invests in a company by means of buying:   
* 9 million shares for $2 a share and   
* 8% bonds with a nominal value of $2 million, repayable at par in 3 years' time.  The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment.
The company has 10 million shares in issue.
What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?
Give your answer to the nearest $ million.
$   million.   

A consultancy company is dependent for profits and growth on the high value individuals it employs. The company has relatively few tangible assets.
Select the most appropriate reason for the net asset valuation method being considered unsuitable for such a company.

A listed company has recently announced a profit warning.
The company's share price fell 20% on the day of the announcement but had been fairly static in the weeks leading up to the announcement.
Which form of efficient market is most likely to be indicated by this share price movement?

Listed company R is in the process of making a cash offer for the equity of unlisted company S. 
Company R has a market capitalisation of $200 million and a price/earnings ratio of 10.
Company S has a market capitalisation of $50 million and earnings of $7 million.
Company R intends to offer $60 million and expects to be able to realise synergistic benefits of $20 million by combining the two businesses.  This estimate excludes the estimated $8 million cost of integrating the two businesses.
Which of the following figures need to be used when calculating the value of the combined entity in $ millions?

A company's current earnings before interest and taxation are $5 million. These are expected to remain constant for the forseeable future. The company has 10 million shares in issue which currently trade at $3.60. It also has a $10 million long term floating rate loan. The current interest rate on this loan is 5%. The company pays tax at 20%. The company expects interest rates to increase next year to 6% and it's Price/Earnings (P/E) ratio to move to 9.5 times by the end of next year.
What percentage reduction in the share price will occur by the end of next year if the interest rate increase and the P/E movement both occur?

A company needs to raise $20 million to finance a project. It has decided on a rights issue at a discount of 20% to its current market share price. There are currently 20 million shares in issue with a nominal value of $1 and a market price of $5 per share.
Calculate the terms of the rights issue.

A company is based in Country Y whose functional currency is Y$. It has an investment in Country Z whose functional currency is Z$. This year the company expects to generate Z$ 10 million profit after tax. Tax Regime:   
* Corporate income tax rate in country Y is 50%   
* Corporate income tax rate in country Z is 20%   
* Full double tax relief is available Assume an exchange rate of Y$ 1 = Z$ 5.
What is the expected profit after tax in Y$ if the Z$ profit is remitted to Country Y?