F3 Exam Dumps - Financial Strategy

Company WWW is identical in all operating and risk characteristics to Company ZZZ. but their capital structures differ. Company WWW and Company ZZZ both pay corporate income tax at 20%

Company WWW has a gearing ratio (debt: equity) of 1:3 Its pre-tax cost of debt is 6%.

Company ZZZ Is all-equity financed. Its cost of equity is 15%

What is the cost of equity tor Company WWW?

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?

A large, listed company is planning a major project that should greatly improve its share price in the long term.

These plans require a significant capital cost that the company plans to finance by debt.

All of the debt options being considered are for the same duration of time.

 

Which of the following sources of debt finance is likely to be the most expensive for the company over the full term of the debt?

G purchased a put option that grants the right to cap the interest on a loan at 10.0%. Simultaneously, G sold a call option that grants the holder the benefits of any decrease if interest rates fall below 8.5%.

Which THREE possible explanations would be consistent with G's behavior?

A company needs to raise $40 million to finance a project. It has decided on a right issue at a discount of 20% to its current market share price.

There are currently 20 million shares in issue with a nominal value of $1 and a market price of $10.00 per share.

An unlisted software development business is to be sold by its founders to a private equity house following the initial development of the software. The business has not yet made a profit but significant profits are expected for the next three years with only negligible profits thereafter. The business owns the freehold of the property from which it operates. However, it is the industry norm to lease property.

Which THREE of the following are limitations to the validity of using the Calculated Intangible Value (CIV) method for this business?

Which three of the following are most likely be primary objectives for a newly established, unincorporated entity in the service sector?

A company has forecast the following results for the next financial year:

  

The following is also relevant:

   • Profit after tax for the year can be assumed to be equivalent to free cash flow for the year.

   • Debt finance comprises a $10 million floating rate loan which currently carries an interest rate of 5%.

   • $400,000 investment in non-current assets is required to achieve required growth, all of which is to financed from next year's free cash flow.

   • The company plans to pay a dividend of $150,000 next year, financed from next year's free cash flow.

The company is concerned that interest rates could rise next year to 6% which could then affect their investment plans.

 

If interest rates were to rise to 6% and the company wishes to maintain its dividend amount, the planned investment expenditure will decrease by: