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Total 305 Questions | Updated On: Nov 18, 2024

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Question 1

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?

A : Retained earnings

B : Private placement of a bond

C : Rights issue

D : Bank overdraft

Answer: C

Question 2

A company based in Country D, whose currency is the D$, has an objective of maintaining an operating profit

margin of at least 10?ch year.

Relevant data:

• The company makes sales to Country E whose currency is the E$. It also makes sales to Country F whose

currency is the F$.

• All purchases are from Country G whose currency is the G$.

• The settlement of all transactions is in the currency of the customer or supplier.

Which of the following changes would be most likely to help the company achieve its objective?

A : The D$ strengthens against the E$ over time.

B : The F$ weakens against the D$ over time.

C : The D$ strengthens against the G$ over time.

D : The D$ weakens against the G$ over time.

Answer: C

Question 3

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?

A : The theoretical ex-rights price will be higher under Director B's proposal than under Director A's proposal.

B : More shares will be issued under Director B's proposal than under Director A's proposal.

C : The rights issue price will be $3.00 under Director A's proposal.

D : The terms of the rights issue will be one new share for every two existing shares under Director A's proposal

E : Shareholder wealth will be higher under Director A's proposal than under Director B's proposal.

Answer: B,C,D

Question 4

A company has a cash surplus which it wishes to distribute to shareholders by a share repurchase rather than

paying a special dividend.

Which THREE of the following statements are correct?

A : The payment of a special dividend could raise shareholders' expectations of similar distributions in the future, unlike a share repurchase.

B : The share repurchase could send a negative signal to shareholders as it could be interpreted as a failure of management to find suitable investment opportunities

C : Determination of the repurchase price will be easy as shareholders will insist on receiving the open market price

D : Different tax regimes could result in shareholders having a preference for a share repurchase due to the often more preferential tax treatment of capital gains.

E : The share repurchase, if approved by the shareholders, will be binding on all of the company's shareholders.

Answer: A,B,D

Question 5

A company is planning to issue a 5 year $100 million bond at a fixed rate of 6%.

It is also considering whether or not to enter into a 10 year $100 million swap to receive 5% fixed and pay

Libor + 1% once a year.

The company predicts that Libor will be 4% over the life of the 5 years.

What is the impact of the swap on the company's annual interest cost assuming that

the Libor prediction is correct?

A : Increase by 1%.

B : Fall by 1%.

C : Remain the same.

D : Fall by 2%.

Answer: C

Page: 1 / 61

Total 305 Questions | Updated On: Nov 18, 2024

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