An unlisted company which is owned and managed by its original founders has accumulated excess cash following many years of profitable trading.
The Board of Directors is comprised of the four original founders who each hold 25% of the equity share capital.
Which THREE of the following will be significant considerations when deciding on the company's dividend policy?

• A.The impact of the dividend policy on the company's share price.
• B.The dividend policy of listed companies in the same industry.
• C.Income tax rates and the personal tax liabilities of the shareholders.
• D.The adequacy of the pension funds of the original founders.
• E.The cash requirements of the shareholders in the foreseeable future.

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A company is wholly equity funded. It has the following relevant data:
* Dividend just paid $4 million
* Dividend growth rate is constant at 5%
* The risk free rate is 4%
* The market premium is 7%
* The company's equity beta factor is 1.2
Calculate the value of the company using the Dividend Growth Model.
Give your answer in $ million to 2 decimal places.

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PYP is a listed courier company. It is looking to raise new finance to fit each of its delivery vans with new equipment to allow improved parcel tracking for customers The senior management team of PYP have decided on a 10-year secured bond to finance this investment- Which TWO of the following variables are most likely to decrease the yield to maturity of the bond?

• A.The announcement of a new contract for PYP that will increase operating profits by 5% over the next 5 years.
• B.The senior management team decide to issue a convertible bond rather than a conventional bond
• C.The senior management team decide to issue an unsecured bond rather than a secured bond
• D.Changing the term of the bond from 1 0 years to 5 years to match the expected life of the new equipment

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Select the category of risk for each of the descriptions below:

Correct Answer:

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A company's current profit before interest and taxation is $1.1 million and it is expected to remain constant for the foreseeable future.
The company has 4 million shares in issue on which the earnings yield is currently 10%. It also has a $2 million bond in issue with a fixed interest rate of 5%.
The corporate income tax rate is 20% and is expected to remain unchanged.
Which of the following is the best estimate of the current share price?

• A.$2.00
• B.$2.75
• C.$1.10
• D.$2.50

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