Question 1

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 2

An analyst has valued a company using the free cash flow valuation model.

The analyst used the following data in determining the value:

• Estimated free cashflow in 1 year's time = $100,000

• Estimated growth in free cashflow after the first year = 5?ch year indefinitely

• Appropriate cost of equity = 10%

The result produced by the analyst was as follows:

Value of equity = $100,000 (1+0.05)/0.10 = $1,050,000

The analyst made a number of errors in determining the value.

By how much has the analyst undervalued the company?

Options :

A : $950,000

B : $2,000,000

C : $2,100,000

D : $1,050,000

Answer: A

Question 3

Company A is located in Country A, where the currency is the A$.

It is listed on the local stock market which was set up 10 years ago.

It plans a takeover of Company B, which is located in Country B where the currency is the B$, and where the

stock market has been operating for over 100 years.

Company A is considering how to finance the acquisition, and how the shareholders of Company B might

respond to a share exchange or cash (paid in B$).

Which of the following is likely to explain why the shareholders of Company B would prefer a share exchange

as opposed to a cash offer?

Options :

A : It would allow them to realise their investment and make a capital gain.

B : It would avoid them being exposed to foreign currency risk.

C : They would receive shares in a market that is likely to be more efficient.

D : It would enable them to benefit from the future performance of the combined entity.

Answer: D

Question 4

Which THREE of the following statements are correct?

Options :

A : A portfolio can be diversified by increasing the number of securities in different industries held in the portfolio.

B : Systematic risk can be eliminated in a diversified portfolio.

C : The beta of a company-s shares reflects systematic risk.

D : A beta of 1 indicates that the investment is risk free.

E : The security market line (SML) shows the relationship between systematic risk and return.

Answer: A,C

Question 5

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