CIMA F3 Exam With Confidence Using Practice Dumps

Company AD is planning to acquire Company DC. It is evaluating two methods of structuring the terms of the bid, which will be ether a debt-funded cash offer or a share exchange

The following Information is relevant

• The two companies are of similar size and in related industries

• AB's gearing ratio measured as debt to debt plus equity, is currently 30% based on market values. This Is the company's optimum capital structure set to reflect the risk appetite of shareholders.

• The combined company is expected to generate savings and synergies

Which THREE of the following are advantages to AB's shareholders of a debt-funded cash offer compared with a share exchange?

A venture capitalist invests in a company by means of buying:

   • 9 million shares for $2 a share and

   • 8% bonds with a nominal value of $2 million, repayable at par in 3 years' time. 

The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment.

The company has 10 million shares in issue.

What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?

Give your answer to the nearest $ million.

$   million.   

A large multi-divisional company in the food processing and distribution business is conducting a strategic review.  The divisions all compete in the same market.

The sale of one of its underperforming food processing divisions to the divisional management team is currently being considered. The purchase by the divisional management team will require venture capital finance.

Which THREE of the following are likely to influence the multi-divisional company's decision on whether or not to sell the under-performing division to the management team?