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Company M is a geared company whose equity has a market value of $1,500 million and debt has a market value of S300 million. The company plans to issue $200 million of new shares and use the funds raised to pay off some of the debt

Company M currently has a cost of equity of 13% and a WACC of 10% It pays corporate tax at the rate of 30% Company B, an ungeared company operating in the same business sector as Company M, has a cost of equity of 12%

Assume Modigliani and Miller's theory of capital structure with tax applies

Which calculation below shows the correct approach to calculating the new WACC following the planned changes in capital structure?

A

B

C

D

RR has agreed to sell goods to XX for S20.000 XX will pay when the goods are delivered in 6 months time. RR's home currency is the £- The current exchange rate is 4.3 £/S. The projected inflation rate for the S is 2.8%, and for the E 4 6%.

When RR receives payment for its goods, what will the value be to the nearest pound?

A company is planning a new share issue.

The funds raised will be used to repay debt on which it is currently paying a high interest rate.

Operating profit and dividends are expected to remain unchanged in the near future.

If the share issue is implemented, which THREE of the following are most likely to increase?

On 31 October 20X3:

   • A company expected to agree a foreign currency transaction in January 20X4 for settlement on 31 March 20X4.  

   • The company hedged the currency risk using a forward contract at nil cost for settlement on 31 March 20X4.

   • The transaction was correctly treated as a cash flow hedge in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

On 31 December 20X3, the financial year end, the fair value of the forward contract was $10,000 (asset).

How should the increase in the fair value of the forward contract be treated within the financial statements for the year ended 31 December 20X3?