Question 31
The table below shows the forecast for a company's next financial year:
The forecast incorporates the following assumptions:
* 25% of operating costs are variable
* Debt finance comprises a $400 million fixed rate loan at 5%
* Corporate income tax is paid at 25%
The company plans to do the following next year from the forecast earnings on the assumption that earnings will be equivalent to free cash flow:
* Pay a total dividend of $20 million
* Invest $40 million in new projects
What is the maximum % reduction in operating activity that could occur next year before the company's dividend and investment plans are affected?
Give your answer to the nearest 0.1%.
Question 32
Which of the following statements is true of a spin-off (or demerger)?
Question 33
Which TIIRCC of the following are most likely be primary objectives for a newly established, unincorporated entity in the service sector?
Question 34
A company has convertible bonds in issue.
The following debt is apply (31 December 20X0):
* Conversion ratio- 20 shares for each $130 bond.
* Current share price - $4 50
* Expected annual growth in share price - 5%
Advise the bond Holder at which date the convers on would be worthwhile?
Question 35
A company is considering whether to lease or buy an asset.
The following data applies:
* The bank will charge interest at 7.14% per annum
* The asset will cost $1 million
* Tax-allowable depreciation is available on a straight line basis over 5 years
* There is no residual value
* Corporate tax is paid at 30% in the year when the profit is earned
What is the NPV of the buy option?
Give your answer to the nearest $000.