A project requires an initial outlay of $2 million which can be financed with either a bank loan or finance lease.
The company will be responsible for annual maintenance under either option.
The tax regime is:
* Tax depreciation allowances can be claimed on purchased assets.
* If leased using a finance lease, tax relief can be claimed on the interest element of the lease payments and also on the accounting depreciation charge.
The trainee management accountant has begun evaluating the lease versus buy decision and has produced the following data. He is not confident that all this information is relevant to this decision.

Using only the relevant data, which of the following is correct?

• A.The bank loan is $70,000 LESS expensive than the finance lease.
• B.The bank loan is $120,000 LESS expensive than the finance lease.
• C.The bank loan is $30,000 MORE expensive than the finance lease.
• D.The bank loan is $20,000 LESS expensive than the finance lease.

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Which THREE of the following are benefits of integrated reporting?

• A.Promote an understanding of the interdependencies of capitals.
• B.Improve short term decision making.
• C.Support integrated decision-making.
• D.Improve the quality of information available to the providers of financial capital.
• E.Reduce the amount of work that is required to produce the report and accounts.

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A company aims to increase profit before interest and tax (PBIT) each year.
The company reports in A$ but has significant export sales priced in B$.
All other transactions are priced in A$.
In 20X1, the company reported:
In 20X2, the only changes expected are:
* An increase in export prices of 10%, but no change to units sold.
* A rise in the value of the B$ to A$/B$ 2.500 (that is, A$ 1 = B$ 2.5) Is it likely that the company would still meet its objective to grow PBIT between 20X1 and 20X2?

• A.No, PBIT would fall by A$ 48 million.
• B.Yes, PBIT would increase by A$ 48 million.
• C.Yes, PBIT would increase by A$ 150 million.
• D.No, PBIT would fall by A$ 150 million.

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A listed company in a high technology industry has decided to value its intellectual capital using the Calculated Intangible Value method (CIV).
Relevant data for the company:
* Pays corporate income tax at 30%
* Cost of equity is 9%, pre-tax cost of debt is 7% and the WACC is 8%
* The value spread has been calculated as $26 million
Calculate the CIV for the company.

• A.289 million
• B.325 million
• C.531 million
• D.228 million

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Company B is an all equity financed company with a cost of equity of 10%.
It is considering issuing bonds in order to achieve a gearing level of 20% debt and 80% equity.
These bonds will pay a coupon rate of 5% and have an interest yield of 6%.
Company B pays corporate tax at the rate of 25%.
According to Modigliani and Miller's theory of capital structure with tax, what will be Company B's new cost of equity?
A)

B)

C)

D)

• A.Option C
• B.Option B
• C.Option A
• D.Option D

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