Question 1

Company P is a large unlisted food-processing company.

Its current profit before interest and taxation is $4 million, which it expects to be maintainable in the future.

It has a $10 million long-term loan on which it pays interest of 10%.

Corporate tax is paid at the rate of 20%.

The following information on P/E multiples is available:

Which of the following is the best indication of the equity value of Company P?

Options :

A : $80 million

B : $40 million

C : $48 million

D : $24 million

Answer: D

Question 2

Company Z has just completed the all-cash acquisition of Company A.

Both companies operate in the advertising industry.

The market considered the acquisition a positive strategic move by Company Z.

Which THREE of the following will the shareholders of Company Z expect the company's directors to

prioritise following the acquisition?

Options :

A : The realisation of anticipated post-acquisition synergies.

B : The development of a dividend policy to meet the expectations of the target company shareholders.

C : The integration and retention of key employees.

D : The regulatory approval required to complete the acquisition.

E : The retention of key customers of the acquired company.

Answer: A,C

Question 3

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?

Options :

A : The relative lack of marketability of unlisted company shares.

B : A lower level of scrutiny and regulation for unlisted companies.

C : Unlisted companies being generally smaller and less established.

D : Control premium not being included within the proxy p/e ratio used.

E : The forecast earnings growth being relatively higher in the unlisted company.

F : A profit item within the unlisted company-s latest earnings which will not reoccur.

Answer: A,B,C

Question 4

For which THREE of the following risk categories does IFRS 7 require sensitivity analysis?

Options :

A : Currency risk

B : Liquidity risk

C : Interest rate risk

D : Commodity risk

E : Credit risk

F : Supply chain risk

Answer: A,C,D

Question 5

TU has relatively few tangible assets and is dependent for profits and growth on the high-value individuals it employs. Which of the following statements best explains why the net asset valuator method’s considered unstable for TU?

Options :

A : TU does not account for its tangible assets

B : TU does not account for its intangible assets.

C : TU accounts for its intangible assets at net realisable value.

D : TU accounts for its intangible assets at historical value.

Answer: B