F3 Exam Dumps : Financial Strategy

An unlisted company operates in a niche market, exploring the west coast of Africa for new oiI reservoirs.

The oil exploration program has been successful in recent years and t now has a substantial amount of oil reserves with a high level of certainty of being recoverable Under financial reporting regulations, oil still in the ground is not recognised as an asset unit is extracted.

The expense of the exploration program has used up all the company’s available cash resources.

The company has denied to list or a stock market and raise finds through an initial public offering to finance its drilling program.

Which of the following valuation methods in the appropriate to use in calculating an initial listing price for this company?

A company is deciding whether to offer a scrip dividend or a cash dividend to its shareholders. 

Although the company has excellent long-term growth prospects, it is experiencing short-term profit and cash flow problems.

Which of the following statements is most likely to be a reason for choosing the scrip dividend?

ART manufactures traditional scooters. It has an equity beta of 1.4 and is financed entirely by equity. It plans to continue to be all-equity financed in future.

It is considering producing a range of electric scooters

GGG is a comparable quoted electric scooter manufacturer GGG has an equity beta of 2 4 reflecting its high level of gearing (the ratio of debt to equity is VI using market values).

The risk-free rate is 5%, and the market premium is 6%. The rate of corporation tax is 20%

What is the recommended discount rate that ART should use to assess the project to manufacture electric scooters?