A company wishes to raise new finance using a rights issue. The following data applies:
* There are 10 million shares in issue with a market value of $4 each
* The terms of the rights will be 1 new share for 4 existing shares held
* After the rights issue, the theoretical ex-rights price (TERP) will be $3.80 Assuming all shareholders take up their rights, how much new finance will be raised ?
Give your answer to one decimal place.
$ ? million

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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?

• A.Retained earnings is the cheapest form of equity finance.
• B.The use of debt finance is always preferable to equity finance.
• C.The use of debt finance increases the cost of equity.
• D.The use of equity finance will create pressure for increases in dividend per share in the future.
• E.The use of debt finance will always result in an increase in earnings per share.
• F.The use of equity finance reduces the company's overall financial risk.

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A company with a market capitalisation of S50million is considering raising $1 million debt to fund a new
10-year capital investment protect
The value of this issue is considered to be small in comparison to the company's market capitalisation The company is considering whether to raise the debt finance by either a "bond private placing' or a 'public bond issue.
Which THREE of the following statements are correct?

• A.An initial public bond issue does not need to be underwritten whereas a bond private placing must be underwritten.
• B.The company's credit rating will be a key element in determining the interest rate payable and the potential success of either the public bond issue or the bond private placing
• C.An initial public bond issue can be arranged relatively quickly whereas a bond private placing can take up to a year to arrange.
• D.An average investor is made aware of a potential initial public bond issue whereas the average investor is only made aware of a bond private placing after it has occurred.
• E.An initial public bond issue will be administratively complex and relatively expensive for the relatively small amount of debt being raised whereas a bond private placing will be relatively less complex

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Listed Company A has prepared a valuation of an unlisted company. Company B.
to achieve vertical integration Company A is intending to acquire a controlling interest in the equity of Company B and therefore wants to value only the equity of Company B.
The assistant accountant of Company A has prepared the following valuation of Company B's equity using the dividend valuation model (DVM):
Where:
* S2 million is Company B's most recent dividend
* 5% is Company B's average dividend growth rate over the last 5 years
* 10% is a cost of equity calculated using the capital asset pricing model (CAPM), based on the industry average beta factor

Which THREE of the following are valid criticisms of the valuation of Company B's equity prepared by the assistant accountant?

• A.The beta factor used may not reflect Company B's financial risk.
• B.The 5% growth rate may not reflect the future growth of Company B.
• C.An unlisted company cannot use the capital asset pricing model to calculate its cost of equity
• D.It is better to use the present value of earnings rather than present value of dividends to value a controlling interest
• E.The DVM calculation should use Company A's cost of equity rather than Company B's cost of equity

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The directors of the following four entities have been discussing dividend policy:

Which of these four entities is most likely to have a residual dividend policy?

• A.C
• B.A
• C.D
• D.B

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