A company plans to acquire new machinery. It has two financing options; buy outright using a bank loan, or a finance lease.Which of the following is an advantage of a finance lease compared with a bank loan?
Answer(s): B
A listed company is financed by debt and equity. If it increases the proportion of debt in its capital structure it would be in danger of breaching a debt covenant imposed by one of its lenders.The following data is relevant:The company now requires $800 million additional funding for a major expansion programme. Which of the following is the most appropriate as a source of finance for this expansion programme?
Answer(s): C
Company A is a listed company that produces pottery goods which it sells throughout Europe. The pottery is then delivered to a network of self employed artists who are contracted to paint the pottery in their own homes. Finished goods are distributed by network of sales agents.The directors of Company A are now considering acquiring one or more smaller companies by means of vertical integration to improve profit margins.Advise the Board of Company A which of the following acquisitions is most likely to achieve the stated aim of vertical integration?
Answer(s): D
A company has just received a hostile bid. Which of the following response strategies could be considered?
Company T has 1,000 million shares in issue with a current share price of $10 each. Company V has 300 million shares in issue with a current share price of $5 each. Company T is considering acquiring Company V. Total synergy gains of $100 million have been estimated. The purchase of Company V's shares would be by cash at a 10% premium above the current share price.In seeking approval for the acquisition, the likely reaction from T's shareholders will be:
An unlisted company is attempting to value its equity using the dividend valuation model. Relevant information is as follows: * A dividend of $500,000 has just been paid. * Dividend growth of 8% is expected for the foreseeable future. * Earnings growth of 6% is expected for the foreseeable future. * The cost of equity of a proxy listed company is 15%. * The risk premium required due to the company being unlisted is 3%. The calculation that has been performed is as follows: Equity value = $540,000 / (0.18 - 0.08) = $5,400,000What is the fault with the calculation that has been performed?
Company X is based in Country A, whose currency is the A$. It trades with customers in Country B, whose currency is the B$. Company X aims to maintain its revenue from exports to Country B at 25% of total revenue.Company A has the following forecast revenue:The forecast revenue from Country B has assumed an exchange rate of A$1/B$2, that is A$1 = B$2.If the B$ depreciates against the A$ by 10%, the ratio of revenue generated from Country B as a percentage of total revenue will:
Answer(s): A
Company AB was established 6 years ago by two individuals who each own 50% of the shares. Each individual heads a separate division within the company, which now has annual turnover of GBP10 million and employs 40 people. Some of the employees are very highly paid as they are important contributors to the company's profitability. The owners of the company wish to realise the full value of their investment within the next 12 months.Which TWO of the following options are most likely to be acceptable exit strategies to the two owners of the company?
Answer(s): B,C
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