Question 1

Extracts from a company's profit forecast for the next financial year as follows:

Since preparing the forecast, the company has decided to return surplus cash to shareholders by a share

repurchase arrangement.

The share repurchase would result in the company purchasing 20% of the 1,250 million ordinary shares

currently in issue and canceling them.

Assuming the share repurchase went ahead, the impact on the company's forecast earnings per share will be an

increase of:

Options :

A : $0.100

B : $0.125

C : $0.175

D : $0.200

Answer: A

Question 2

An unlisted company operates in a niche market, exploring the west coast of Africa for new oiI reservoirs.

The oil exploration program has been successful in recent years and t now has a substantial amount of oil

reserves with a high level of certainty of being recoverable Under financial reporting regulations, oil still in the

ground is not recognised as an asset unit is extracted.

The expense of the exploration program has used up all the company’s available cash resources.

The company has denied to list or a stock market and raise finds through an initial public offering to finance

its drilling program.

Which of the following valuation methods in the appropriate to use in calculating an initial listing price for this

company?

Options :

A : Market capitalisation.

B : Framings valuation using the ratio of a multinational oil exploration company

C : Net asset valuation based on book values.

D : Discounted cash flow valuation

Answer: D

Question 3

The Board of Directors of Company T is considering a rights issue to fund a new investment opportunity

which has a zero NPV.

The Board of Directors wishes to explain to shareholders what the theoretical impact on their wealth will be as

a result of different possible actions during the rights issue.

Which THREE of the following statements in respect of theoretical shareholder wealth are true?

Options :

A : If shareholders exercise their full rights there will be no impact on their wealth.

B : If the shareholders allow their rights to lapse (do nothing) there will be no impact on their wealth.

C : If shareholders sell their entire rights entitlement there will be no impact on their wealth.

D : If the shareholders only partially exercise their rights and allow the remainder to lapse there will be no impact on their wealth

E : If shareholders partially exercise their rights and sell the remaining rights entitlement there will be no impact on their wealth.

Answer: A,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

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