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F3 Financial Strategy Questions 145–152 (page: 20)

A company plans to raise $12 million to finance an expansion project using a rights issue. Relevant data:
* Shares will be offered at a 20% discount to the present market price of $15.00 per share.
* There are currently 2 million shares in issue.
* The project is forecast to yield a positive NPV of $6 million.
What is the yield-adjusted Theoretical Ex-Rights Price following the announcement of the rights issue?

A listed company is planning a share repurchase. 
The following data applies:   
* There are 10 million shares in issue   
* The  share repurchase will involve buying back 20% of the shares at a price of $0.75   
* The company is holding $2 million cash   
* Earnings for the current year ended are $2 million
The Directors are concerned about the impact that this repurchase programme will have on the company's cash balance and current year earnings per share (EPS) ratio.
Advise the directors which of the following statements is correct?

Company A has a cash surplus. The discount rate used for a typical project is the company's weighted average cost of capital of 10%. No investment projects will be available for at least 2 years.
Which of the following is currently most likely to increase shareholder wealth in respect of the surplus cash?

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

A company wishes to raise additional debt finance and is assessing the impact this will have on key ratios.  The following data currently applies:   
* Profit before interest and tax for the current year is $500,000   
* Long term debt of $300,000 at a fixed interest rate of 5%   
* 250,000 shares in issue with a share price of $8 The company plans to borrow an additional $200,000 on the first day of the year to invest in new project which will improve annual profit before interest and tax by $24,000. The additional debt would carry an interest rate of 3%. Assume the number of shares in issue remain constant but the share price will increase to $8.50 after the investment. The rate of corporate income tax is 30%.
After the investment, which of the following statements is correct?

On 1 January:   
* Company X has a value of $50 million   
* Company Y has a value of $20 million   
* Both companies are wholly equity financed Company X plans to take over Company Y by means of a share exchange. Following the acquisition the post-tax cashflow of Company X for the foreseeable future is estimated to be $8 million each year. The post-acquisition cost of equity is expected to be 10%.
What is the best estimate of the value of the synergy that would arise from the acquisition? 

Company X is an established, unquoted company which provides IT advisory services. The company's results and cashflows are growing steadily and it has few direct competitors due to the very specialised nature of it's business. Dividends are predictable and paid annually. Company P is looking to buy 30% of company X's equity shares.
Which TWO of the following methods are likely to be considered most suitable valuation methods for valuing company P's investment in Company X?

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?