A listed company is planning to raise $21.6 million to finance a new project with a positive net present value of $5 million. The finance is to be raised via a rights issue at a 10% discount to the current share price. There are currently 100 million shares in issue, trading at $2.00 each.Taking the new project into account, what would the theoretical ex-rights price be?Give your answer to two decimal places.
Answer(s): A
Company A is planning to acquire Company B.Company A's managers think they can improve the performance of Company B to the extent that its own P/E ratio should be applied to Company B's earnings.Relevant Data:What is the expected synergy if the acquisition goes ahead? Give your answer to the nearest $ million.
Which THREE of the following remain unchanged over the life of a 10 year fixed rate bond?
Answer(s): A,D,E
On 31 October 20X3: * A company expected to agree a foreign currency transaction in January 20X4 for settlement on 31 March 20X4.* The company hedged the currency risk using a forward contract at nil cost for settlement on 31 March 20X4. * The transaction was correctly treated as a cash flow hedge in accordance with IAS 39 Financial Instruments: Recognition and Measurement. On 31 December 20X3, the financial year end, the fair value of the forward contract was $10,000 (asset).How should the increase in the fair value of the forward contract be treated within the financial statements for the year ended 31 December 20X3?
Answer(s): D
A company is funded by: * $40 million of debt (market value) * $60 million of equity (market value) The company plans to: * Issue a bond and use the funds raised to buy back shares at their current market value. * Structure the deal so that the market value of debt becomes equal to the market value of equity.According to Modigliani and Miller's theory with tax and assuming a corporate income tax rate of 20%, this plan would:
Answer(s): C
A company has 6 million shares in issue. Each share has a market value of $4.00. $9 million is to be raised using a rights issue. Two directors disagree on the discount to be offered when the new shares are issued. * Director A proposes a discount of 25% * Director B proposes a discount of 30%Which THREE of the following statements are most likely to be correct?
Answer(s): B,C,D
A wholly equity financed company has the following objectives: 1. Increase in profit before interest and tax by at least 10% per year. 2. Maintain a dividend payout ratio of 40% of earnings per year.Relevant data: * There are 2 million shares in issue. * Profit before interest and tax in the last financial year was $5 million. * The corporate income tax rate is 30%. At the beginning of the current financial year, the company raised long term debt of $2 million at 10% interest each year. Calculate the dividend per share that will be announced this year assuming the company achieves its objective of increasing profit before interest and tax by 10%.
When valuing an unlisted company, a P/E ratio for a similar listed company may be used but adjustments to the P/E ratio may be necessary.Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use?
Answer(s): A,B,C
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