Company T has 1,000 million shares in issue with a current share price of $10 each.
Company V has 300 million shares in issue with a current share price of $5 each.
Company T is considering acquiring Company V.
Total synergy gains of $100 million have been estimated.
The purchase of Company V's shares would be by cash at a 10% premium above the current share price.
In seeking approval for the acquisition, the likely reaction from T's shareholders will be:

• A.accepted as there is $100 million of synergy which will all go to T's shareholders.
• B.rejected as T's shareholders will see a decrease in their wealth overall of $50 million.
• C.rejected as T's shareholders will not be willing to pay more than $1,500 million for V.
• D.accepted as there will be an increase in the value of the business of $1,500 million.

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Under traditional theory, an increase in a company's WACC would cause the value of the company to:

• A.Increase
• B.Either increase or decrease
• C.Decrease
• D.Stay the same

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A listed company is planning a share repurchase.
The following data applies:
* There are 10 million shares in issue
* The share repurchase will involve buying back 20% of the shares at a price of $0.75
* The company is holding $2 million cash
* Earnings for the current year ended are $2 million
The Directors are concerned about the impact that this repurchase programme will have on the company's cash balance and current year earnings per share (EPS) ratio.
Advise the directors which of the following statements is correct?

• A.The cash balance will decrease by 20% and the EPS will increase by 25%.
• B.The cash balance will decrease by 75% and EPS will increase by 25%.
• C.The cash balance will decrease by 75% and EPS will decrease by 25%.
• D.The cash balance will decrease by 20% and the EPS will decrease by 25%.

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An all equity financed company reported earnings for the year ending 31 December 20X1 of $5 million.
One of its financial objectives is to increase earnings by 5% each year.
In the year ending 31 December 20X2 it financed a project by issuing a bond with a $1 million nominal value and a coupon rate of 7%.
The company pays corporate income tax at 30%.
If the company is to achieve its earnings target for the year ending 31 December 20X2, what is the minimum operating profit (profit before interest and tax) that it must achieve?

• A.$7.50 million
• B.$5.25 million
• C.$7.57 million
• D.$8.40 million

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A company intends to sell one of its business units, Company R by a management buyout (MBO).
A selling price of $100 million has been agreed.
The managers are discussing with a bank and a venture capital company (VCC) the following financing proposal:
The VCC requires a minimum return on its equity investment in the MBO of 30% a year on a compound basis over 5 years.
What is the minimum TOTAL equity value of Company R in 5 years time in order to meet the VCC's required return?
Give your answer to one decimal place.
$ ? million

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