QUESTION: 97

A company has undertaken a transaction with its shareholders which has had the following impact on its financial statements:

· Retained earnings has decreased

· Share capital has increased

· Earnings per share has decreased

· The book value of equity is unchanged

The company has undertaken a:

share repurchase.
scrip dividend.
rights issue.
cash dividend.

Answer(s): B

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QUESTION: 98

CORRECT TEXT

A company plans to cut its dividend but is concerned that the share price will fall. This demonstrates the _____________

effect

Answer(s): A

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QUESTION: 99

CORRECT TEXT

A company intends to sell one of its business units, Company R by a management buyout (MBO).

A selling price of $100 million has been agreed.

The managers are discussing with a bank and a venture capital company (VCC) the following financing proposal:

The VCC requires a minimum return on its equity investment in the MBO of 30% a year on a compound basis over 5 years.

What is the minimum TOTAL equity value of Company R in 5 years time in order to meet the VCC's required return?

Give your answer to one decimal place.

111.4, 111, 111.0, 111.1, 111.2, 111.3, 111.5, 111.6, 111.7

Answer(s): A

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QUESTION: 100

A company has 8% convertible bonds in issue. The bonds are convertible in 3 years time at a ratio of 20 ordinary shares per $100 nominal value bond.

Each share:

· has a current market value of $5.60

· is expected to grow at 5% each year

What is the expected conversion value of each $100 nominal value bond in 3 years' time?

$129.6
$117.6
$100.0
$112.0

Answer(s): A

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