Legit F3 Exam Download

Select whether the following statements are true or false with regard to Modigliani and Miller's dividend policy theory.

A profitable company wishes to dispose of a loss-making division that generated negative free cashflow in the last financial year.

The division requires significant new investment to return it to profitability.

Which of the following valuation approaches is likely to be the most useful to the company when negotiating the sales price?

A company has forecast the following results for the next financial year:

The following is also relevant:

   • Profit after tax for the year can be assumed to be equivalent to free cash flow for the year.

   • Debt finance comprises a $10 million floating rate loan which currently carries an interest rate of 5%.

   • $400,000 investment in non-current assets is required to achieve required growth, all of which is to financed from next year's free cash flow.

   • The company plans to pay a dividend of $150,000 next year, financed from next year's free cash flow.

The company is concerned that interest rates could rise next year to 6% which could then affect their investment plans.

If interest rates were to rise to 6% and the company wishes to maintain its dividend amount, the planned investment expenditure will decrease by:

Which of the following statements about companies seeking a stock market listing is correct?