F3 Exam Dumps - Financial Strategy

When valuing an unlisted company, a P/E ratio for a similar listed company may be used but adjustments to the P/E ratio may be necessary.

 

Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use? 

An entity prepares financial statements to 30 June.

During the year ended 30 June 20X2 the following events occurred:

 

1 July 20X1

   • The entitiy borrowed $100 million at a variable rate of interest.

   • In order to protect itself against the variability of its interest cashflows, the entity entered into a pay-fixed-receive-variable interest swap with annual settlements.  The fair value of the swap on this date was zero.

30 June 20X2

   • The entity received a net settlement of $2 million under the swap. After this net settlement, the fair value of the swap was $5 million - a financial asset.

The entity decides to use hedge accounting for this arrangement and has designated it as a cash flow hedge.  The swap is a perfect hedge of the variability of the cash interest payments.

 

Which of the following describes the treatment of the settlement and the change in the fair value of the swap in the statement of profit or loss and other comprehensive income for the year ended 30 June 20X2?

The table below shows the forecast for a company's next financial year:

 

 

The forecast incorporates the following assumptions:

   • 25% of operating costs are variable

   • Debt finance comprises a $400 million fixed rate loan at 5%

   • Corporate income tax is paid at 25%

 

The company plans to do the following next year from the forecast earnings on the assumption that earnings will be equivalent to free cash flow: 

   • Pay a total dividend of $20 million

   • Invest $40 million in new projects

 

What is the maximum % reduction in operating activity that could occur next year before the company's dividend and investment plans are affected?

 

Give your answer to the nearest 0.1%.

 

   

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?

An unlisted company wishes to obtain an estimated value for its shares in anticipation of a private sale of a large parcel of shares.

 

Relevant data for the unlisted company:

   • It has a residual dividend policy. 

   • It has earnings that are highly sensitive to underlying economic conditions.

   • It is a small business in a large industry where there are listed companies but there are none with a similar capital structure. 

 

The company intends to base valuations on the cost of equity of a proxy company after adjusting for any differences in capital structure where appropriate.

 

Which of the following methods is likely to give the most accurate equity value for this unlisted company?

Company A is based in country A with the AS as its functional currency. It expects to receive BS20 million from Company B in settlement of an export invoice.

The current exchange rate is A$1 =B$2 and the daily standard deviation of this exchange rate = 0 5%

What is the one-day 95% VaR in AS?

The Board of Directors of a listed company wish to estimate a reasonable valuation of the entire share capital of the company in the event of a takeover bid.

The company's current profit before taxation is $4.0 million.

The rate of corporate tax is 25%.

The average P/E multiple of listed companies in the same industry is 8 times current earnings.

The P/E multiple of recent takeovers in the same industry have ranged from 9 times to 10 times current earnings.

The average P/E multiple of the top 100 companies on the stock market is 15 times current earnings. 

 

Advise the Board of Directors which of the following is a reasonable estimate of a range of values of the entire share capital in the event of a bid being made for the whole company?

Which of the following statements are true with regard to interest rate swaps?

Select ALL that apply.