F3 Exam Dumps : Financial Strategy

Company A operates in country A with the AS as its functional currency. Company A expects to receive BS500.000 in 6 months' time from a customer in Country B which uses the B$.

Company A intends to hedge the currency risk using a money market hedge

The following information is relevant:

What is the AS value of the BS expected receipt in 6 months' time under a money market hedge?

It is now 1 January 20X0.

Company V, a private equity company, is considering the acquisition of 40% of the equity of Company A for a total amount of $15 million.

Company A has been established to develop a new type of engine which will be launched at the end of 20X1. Company A is forecasting that the new engine will result in free cash flows to equity of $2m in its first year of operation and that this will rise by 8% per year for the foreseeable future.

The new engine is the only commercial activity that Company A is involved in.

Company V intends to sell its stake in Company A when the new engine is launched.

Company A has a cost of equity of 12%.

Assuming that Company V receives an amount that reflects the present value of their shares in company A. what is the estimated annual rate of return to Company V from this investment? (To the nearest %)

The following information relates to Company A's current capital structure:

Company A is considering a change in the capital structure that will increase gearing to 30:70 (Debt:Equity). 

The risk -free rate is 3% and the return on the market portfolio is expected to be 10%.

The rate of corporate tax is 25%

Using the Capital Asset Pricing Model, calculate the cost of equity resulting from the proposed change to the capital structure.