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In comparing the above two organisations and their objectives, which THREE of the following statements are correct?
Hospital X provides free healthcare to all members of the community, funded by the central Government. Hospital Y provides healthcare which has to be paid for by the individual patients. It is a listed company, owned by a large number of shareholders. In comparing the above two organisations and their...
Which of the following is a reasonable expectation of the equity value in the event of an attempted takeover?
Company T is a listed company in the retail sector. Its current profit before interest and taxation is $5 million. This level of profit is forecast to be maintainable in future. Company T has a 10% corporate bond in issue with a nominal value of $10 million. This currently trades...
Advise the Board of Company A which of the following acquisitions is most likely to achieve the stated aim of vertical integration?
Company A is a listed company that produces pottery goods which it sells throughout Europe. The pottery is then delivered to a network of self employed artists who are contracted to paint the pottery in their own homes. Finished goods are distributed by network of sales agents.The directors of Company...
Which THREE of the following would be considered disadvantages of a scrip dividend compared to a zero dividend?
The Board of Directors of a listed company have decided that it needs to increase its equity capital to ensure it is in a more stable financial position. The shareholder profile is a mix of institutional and individual small shareholders. The board is considering either: • A scrip dividend •...
What would be the risk-adjusted cost of equity if Company Y has 60% equity and 40% debt?
Company Y plans to diversify into an activity where Company X has an equity beta of 1.6, a debt beta of zero and gearing of 50% (debt/debt plus equity). The risk-free rate of return is 5% and the market portfolio is expected to return 10%. The rate of corporate income...
Using the dividend growth model, what would be the expected change in share price?
Company A plans to acquire a minority stake in Company B. The last available share price for Company B was $0.60. Relevant data about Company B is as follows: • A dividend per share of $0.08 has just been paid • Dividend growth is expected to be 2% • Earnings...
What is the value of the company using a P/E valuation?
A company is owned by its five directors who want to sell the business. Current profit after tax is $750,000. The directors are currently paid minimal salaries, taking most of their incomes as dividends. After the company is sold, directors' salaries will need to be increased by $50,000 each year...
If the suggested change is made to the financial policies, which THREE of the following statements are true?
A listed company in a high growth industry, where innovation is a key driver of success has always operated a residual dividend policy, resulting in volatility in dividends due to periodic significant investments in research and development. The company has recently come under pressure from some investors to change its...
If the company is to achieve its earnings target for the year ending 31 December 20X2, what is the minimum operating profit (profit before interest and tax) that it must achieve?
An all equity financed company reported earnings for the year ending 31 December 20X1 of $5 million. One of its financial objectives is to increase earnings by 5% each year. In the year ending 31 December 20X2 it financed a project by issuing a bond with a $1 million nominal...
What is the minimum dividend payout ratio in 5 years' time that would allow the company to achieve its objective?
A company's main objective is to achieve an average growth in dividends of 10% a year. In the most recent financial year: Sales are expected to grow at 8% a year over the next 5 years. Costs are expected to grow at 5% a year over the next 5 years....
