CIMA F3 Exam With Confidence Using Practice Dumps

A company wishes to raise additional debt finance and is assessing the impact this will have on key ratios. 

The following data currently applies:

   • Profit before interest and tax for the current year is $500,000

   • Long term debt of $300,000 at a fixed interest rate of 5%

   • 250,000 shares in issue with a share price of $8

The company plans to borrow an additional $200,000 on the first day of the year to invest in new project which will improve annual profit before interest and tax by $24,000.

The additional debt would carry an interest rate of 3%.

Assume the number of shares in issue remain constant but the share price will increase to $8.50 after the investment.

The rate of corporate income tax is 30%.

After the investment, which of the following statements is correct?

A listed company in a high technology industry has decided to value its intellectual capital using the Calculated Intangible Value method (CIV).

Relevant data for the company:

   • Pays corporate income tax at 30%

   • Cost of equity is 9%, pre-tax cost of debt is 7% and the WACC is 8%

   • The value spread has been calculated as $26 million

Calculate the CIV for the company.

The two founding directors of an unlisted geared company want to establish its value as they are intending to approach a venture capitalist for additional funding.

The funding will be used to invest in a major new project which has very high growth potential. The directors intend to sell 10% of the company to the venture capitalist They have prepared the following current valuation of the company using the divided valuation model:

The following information is relevant.

• $60,000 is the most recent dividend paid.

• 4% is the average dividend growth over the last few years.

• 10% is an estimate of the company's cost of equity using the CAPM model with the industry average asset beta

Which THREE of the following are weaknesses of the valuation method used in these circumstances?