CIMAPRA19-F03-1 Practice Questions

A company is owned by its five directors who want to sell the business. Current profit after tax is $750,000. The directors are currently paid minimal salaries, taking most of their incomes as dividends. After the company is sold, directors' salaries will need to be increased by $50,000 each year in total. A suitable Price/Earnings (P/E) ratio is 7, and the rate of corporate tax is 20%. What is the value of the company using a P/E valuation?

A company has an opportunity to invest in a positive net present value project, but the project would require debt finance that would push the company's gearing ever a limit imposed by a debt covenant on an existing loan. Which THREE of the following actions could be taken by the company?

A company with a market capitalisation of S50million is considering raising $1 million debt to fund a new 10-year capital investment protect The value of this issue is considered to be small in comparison to the company's market capitalisation The company is considering whether to raise the debt finance by either a "bond private placing' or a 'public bond issue. Which THREE of the following statements are correct?

Company A operates in country A with the AS as its functional currency. Company A expects to receive BS500.000 in 6 months' time from a customer in Country B which uses the B$. Company A intends to hedge the currency risk using a money market hedge The following information is relevant: What is the AS value of the BS expected receipt in 6 months' time under a money market hedge?

Company BBB has prepared a valuation of a competitor company, Company BBD. Company BBB is intending to acquire a controlling interest in the equity of Company BBD and therefore wants to value only the equity of Company BBD. The directors of Company BBB have prepared the following valuation of Company BBD: Value of Equity = 4.63 + 5.14 + 5.56 = S15.33 million Additional information on Company BBD: Which THREE of the following are weaknesses of the above valuation?

Company AAB is located in Country A with the A$ as its functional currency It plans to grow by acquisition and has identified Company BBA as a potential takeover candidate Company BBA is located in Country B with the BS as its functional currency. The directors of Company AAB are concerned about foreign currency risk if the acquisition goes ahead Which of the following will be most effective in reducing Company AAB's exposure to translation risk if the acquisition is successful1?

XYZ is a multi-national group with subsidiary AA in Country A and subsidiary BB in Country B. The capital structures of AA and BB are set up to take advantage of the lower tax rate in Country A Thin capitalisation rules in Country B will limit the ability for either AA or BB to claim tax relief on:

Which of the following best explains why the interest rate parity model is highly effective in practice?

Company A is a large well-established listed entertainment company and Company B is a small unlisted company specializing in providing online media streaming. Company A has a gearing ratio of 60% (using book values) and interest cover of 2. Company A is considering making an offer for Company B, either a cash offer financial by raising additional debt finance or a share-for-share exchange. Which of the following is most likely to occur if Company A offers a share-for exchange rather than offering cash finance by raising debt?

A listed company with a growing share price plans to finance a four-year research project with debt. The main criterion for the finance is to minimise the annual cashflow payments on the debt. The research will be sold at the end of the project. Which of the following would be the most suitable financing method for the company?