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Total 435 questions

Financial Strategy Questions and Answers

Question 121

D has US$10 million to invest over 12 months in either USS or GBP Its options are to invest in USS at the present USS interest rate of 10 18%. or to convert the USS to GBP at the spot rate GBP1 =US$1 61 and invest in GBP at an interest rate of 6.4%.

According to the interest rate parity theory, what will the one year forward rate be?

Give your answer to three decimal places.

Options:

Question 122

A company has announced a rights issue of 1 new share for every 4 existing shares. 

 

Relevant data:

   • The current market price per share is $10.00.

   • Rights are to be issued at a 20% discount to the current price.

   • The rate of return on the new funds raised is expected to be 10%.

   • The rate of return on existing funds is 5%.

What is the yield-adjusted theoretical ex-rights price?

 

Give your answer to two decimal places.

 

$ ?  

Options:

Question 123

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 %)

Options:

A.

3%

B.

10%

C.

16%

D.

33%

Question 124

A company's Board of Directors is assessing the likely impact of financing new projects by using either debt or equity finance.

The impact of using debt or equity finance on some key variables is uncertain.

 

Which THREE of the following statements are true?

Options:

A.

The use of equity finance reduces the company's overall financial risk.

B.

The use of equity finance will create pressure for increases in dividend per share in the future.

C.

The use of debt finance will always result in an increase in earnings per share.

D.

Retained earnings is the cheapest form of equity finance.

E.

The use of debt finance increases the cost of equity.

F.

The use of debt finance is always preferable to equity finance.

Page: 31 / 33
Total 435 questions