Question 1

A company’s statement of financial position includes non-current assets which are leased, the tax regime

follows the accounting treatment.

Which cash flows should be discounted when evaluating the cost of lease finance?

Options :

A : Lease payments, implied interested and straight-line accounting deprediation.

B : Lease payments and straight-line accounting depreciation.

C : Lease payments and implied interest.

D : Lease payments, tax relief on implied interest and tax relief on straight-line account depreciation.

Answer: B

Question 2

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 3

A is a listed company. Its shares trade on a stock market exhibiting semi-strong form efficiency.

Which of the following is most likely to increase the wealth of A's shareholders?

Options :

A : Announcing that a project will be undertaken generating a positive net present value.

B : Announcing that the final dividend will remain unchanged from the previous 3 years.

C : Announcing that a non-current asset will be revalued in the statement of financial position.

D : Announcing that inventory will be impaired.

Answer: A

Question 4

A company's current profit before interest and taxation is $1.1 million and it is expected to remain constant for

the foreseeable future.

The company has 4 million shares in issue on which the earnings yield is currently 10%. It also has a $2

million bond in issue with a fixed interest rate of 5%.

The corporate income tax rate is 20% and is expected to remain unchanged.

Which of the following is the best estimate of the current share price?

Options :

A : $2.75

B : $2.50

C : $2.00

D : $1.10

Answer: C

Question 5

A company gas a large cash balance but its directors have been unable to identify any positive NPV projects to invest in. Which THREE of the following are advantages of a share repurchase, compared with a one-off large dividend?

Options :

A : The shareholder can choose whether to take the cast or not.

B : It increases the number of shares issue.

C : It means that the company will be able to pay lower total dividends in the future.

D : It returns cash to shareholders so that they can choose hew to spend It

E : It will not create an expectation for future increased dividends.

Answer: A,D