Question 1

A company has just received a hostile bid. Which of the following response strategies could be considered?

Options :

A : Revalue non-current assets

B : Poison pill strategy

C : Change the Articles of Association to amend voting rights

D : Approach a White Knight

Answer: D

Question 2

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 3

H Company has a fixed rate load at 10.0%, but wishes to swap to variable. It can borrow at LIBOR 8%.

The bank is currently quoting swap rates of 3.1% (bid) and 3.5% (ask).

What net rate will H Company pay if it enters into the swap?

Options :

A : LIBOR +6.5%

B : LIBOR +8%

C : LIBOR +6.9%

D : LIBOR +3.1%

Answer: C

Question 4

Company W has received an unwelcome takeover bid from Company B. The offer is a share exchange of 3

shares in Company B for 5 shares in Company W or a cash alternative of $5.70 for each Company W share.

Company B is approximately twice the size of Company W based on market capitalisation. Although the two

companies have some common business interested the main aim of the bid is diversification for Company B.

Company W has substantial cash balances which the directors were planning to use to fund an acquisition.

These plans have not been announced to the market.

The following share price information is relevant.

Which of the following would be the most appropriate action by Company W's directors following receipt of

this hostile bid?

Options :

A :

Change the Articles of Association to increase the percentage of shareholder votes required to approve a

takeover.

B : Refer the bid to the country-s competition authorities.

C : Write to shareholders explaining fully why the company-s share price is under valued.

D : Pay a one-off special dividend.

Answer: C

Question 5

A company has just received a hostile bid. Which of the following response strategies could be considered?

Options :

A : Revalue non-current assets

B : Poison pill strategy

C : Change the Articles of Association to amend voting rights

D : Approach a White Knight

Answer: D