CIMA F3 Exam With Confidence Using Practice Dumps

An unlisted company wishes to obtain an estimated value for its shares in anticipation of a private sale of a large parcel of shares.

Relevant data for the unlisted company:

   • It has a residual dividend policy. 

   • It has earnings that are highly sensitive to underlying economic conditions.

   • It is a small business in a large industry where there are listed companies but there are none with a similar capital structure. 

The company intends to base valuations on the cost of equity of a proxy company after adjusting for any differences in capital structure where appropriate.

Which of the following methods is likely to give the most accurate equity value for this unlisted company?

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?

Company C has received an unwelcome takeover bid from Company P.

Company P is approximately twice the size of Company C based on market capitalisation.

Although the two companies have some common business interests, the main aim of the bid is diversification for Company P.

The offer from Company P is a share exchange of 2 shares in Company P for 3 shares in Company C.

There is a cash alternative of $5.50 for each Company C share.

Company C 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. All prices are in $.

Which of the following would be the most appropriate action by Company C's directors following receipt of this hostile bid?