F3 Exam Dumps : Financial Strategy

A company's Board of Directors wishes to determine a range of values for its equity.

The following information is available:

Estimated net asset values (total asset less total liabilities including borrowings):

   • Net book value = $20 million

   • Net realisable value = $25 million

   • Free cash flows to equity = $3.5 million each year indefinitely, post-tax.

   • Cost of equity = 10%

   • Weighted Average Cost of Capital = 7%

Advise the Board on reasonable minimum and maximum values for the equity.

A company is in the process of issuing a 10 year $100 million bond and is considering using an interest rate swap to change the interest profile on some or all of the $100 million new finance.

The company has a target fixed versus floating rate debt profile of 1:1. Before issuing the bond its debt profile was as follows:

Which of the following is the most appropriate interest rate swap structure for the company? 

The Senior Management Team of ABC, an owner-managed, capital intensive start-up engineering business, is considering the options for its dividend policy. It has so far been a successful business and is expanding quickly Once in place, the Senior Management Team anticipates that its current investment plans will yield returns for many years to come The first agenda item at every meeting currently concerns arranging and funding new equipment and premises.

Which of the following dividend policies is likely to be the most suitable?