M is an accountant who wishes to take out a forward rate agreement as a hedging instrument but the company treasurer has advised that a short-term interest rate future would be a better option.
Which of the following is true of a short-term interest rate future?

• A.It must be kept for ne whole duration of the contract
• B.The date is flexible and the position can be closed quickly and easily.
• C.It interest rates have gone down the price of the future will have fallen.
• D.It can be tailored to the exact reeds of the company.

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A company is concerned about the interest rate that it will be required to pay on a planned bond issue.
It is considering issuing bonds with warrants attached.
Advise the directors which of the following statements about warrants is NOT correct?

• A.Warrants can potentially be very expensive because they can involve the issue of shares at a discount in the future if exercised.
• B.Warrants can be sold back to the issuing company for the nominal value of the share if no longer required by the bond holder.
• C.Warrants are a debt sweetener attached to the bond to drive down the interest rate payable on the bond.
• D.Warrants give the holder the right to buy ordinary shares in the company at a fixed price at a future date.

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A government is currently considering the privatisation of the national airline. The shares are to be offered to the public via a fixed price Initial Public Offering (IPO).
Which THREE of the following statements are correct?

• A.The rational airline employees will no longer be public sector employees following the completion of the privatisation
• B.The use of a fixed price offer will ensure that the government raises the maximum amount of finance.
• C.The government will receive significant financial resources from the sale of its shareholding in the national airline.
• D.An IPO is normally underwritten
• E.The rational airline will receive significant financial resources as a direct result of the shares company shares in the IPO.

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Company X is an established, unquoted company which provides IT advisory services.
The company's results and cashflows are growing steadily and it has few direct competitors due to the very specialised nature of it's business. Dividends are predictable and paid annually.
Company P is looking to buy 30% of company X's equity shares.
Which TWO of the following methods are likely to be considered most suitable valuation methods for valuing company P's investment in Company X?

• A.Asset based using replacement cost
• B.P/E ratio method using IT industry average
• C.Cash based using free cash flow before interest
• D.Dividend based using DVM
• E.Earnings yield method using a listed IT company as proxy

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Company Z has identified four potential acquisition targets: companies A, B, C and D.
Company Z has a current equity market value of $580 million.
The price it would have to pay for the equity of each company is as follows:

Only one of the target companies can be acquired and the consideration will be paid in cash.
The following estimations of the new combined value of Company Z have been prepared for each acquisition before deduction of the cash consideration:
Ignoring any premium paid on acquisition, which acquisition should the directors pursue?

• A.D
• B.B
• C.C
• D.A

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