A company is reporting under IFRS 7 Financial Instruments: Disclosures for the first time and the directors are concerned about whether this will lead to the disclosure of information that could affect the company's share price.
The company is based in a country that uses the A$ but 40% of revenue relates to export sales to the USA and priced in US$.
When the company reports under IFRS 7 for the first time, the share price is most likely to:

• A.Increase due to greater clarity of information available on the extent of US$ risks and how they are managed.
• B.Either increase or decrease depending on market reaction to new information on how financial risk is managed.
• C.Decrease since investors place a lower value on higher risk businesses.
• D.Stay the same since US$ risk can already be quantified from segmental analysis disclosures included elsewhere in the annual report.

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Company R is a well-established, unlisted, road freight company.
In recent years R has come under pressure to improve its customer service and has had some cusses in doing this However, the cost of improved service levels has resulted In it marketing small losses in its latest financial year. This is the forest time R has not been profitable.
R uses a' residual divided policy ad has paid dividends twice in the last 10 years.
Which of the following methods would be most appropriate for valuating R?

• A.The divided valuation mode.
• B.Valuing the tangible assets and intangible assets of R.D. The P/E method, adjusting the P/E of a listed company downwards to reflect R's unlisted status.
• C.The earnings yield method, adjusting the earnings yield of a listed company downloads to reflect R's unlisted status.

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A company's dividend policy is to pay out 50% of its earnings.
Its most recent earnings per share was $0.50, and it has just paid a dividend per share of $0.25.
Currently, dividends are forecast to grow at 2% each year in perpetuity and the cost of equity is 10.5%.
In order to grow its earnings and dividends, the company is considering undertaking a new investment funded entirely by debt finance. If the investment is undertaken:
* Its cost of equity will immediately increase to 12% due to the increased finance risk.
* Its earnings and dividends will immediately commence growing at 4% each year in perpetuity.
Which of the following is the expected percentage change in the share price if the new investment is undertaken?

• A.Increase = 2%
• B.Increase = 10.5%
• C.Increase = 8.3%
• D.Decrease = 7.7%

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AA is considering changing its capital structure. The following information is currently relevant to AA:

The gearing rating raising the new debt finance will be 50%.
Which THREE of the following statement about the impact of AA's change in capital structure are true under Modigliani and Miler's capital structure theory with tax.

• A.The WACC will decrease below 7.6%
• B.The cost of debt remain unchanged at 4%
• C.The cost of debt will increase above 4%
• D.The cost of equity will increase above 10%
• E.The WACC increase above 7.6
• F.The cost of equity will decrease below 10%

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A private company manufactures goods for export, the goods are priced in foreign currency B$.
The company is partly owned by members of the founding family and partly by a venture capitalist who is helping to grow the business rapidly in preparation for a planned listing in three years' time.
The company therefore has significant long term exposure to the B$.
This exposure is hedged up to 24 months into the future based on highly probable forecast future revenue streams.
The company does not apply hedge accounting and this has led to high volatility in reported earnings.
Which of the following best explains why external consultants have recently advised the company to apply hedge accounting?

• A.To provide a more appropriate earnings figure for use in calculating the annual dividend.
• B.To make it easier for the market to value the business when it is listed on the Stock Exchange.
• C.To fully adopt IFRS in preparation for listing the company.
• D.To ensure that the venture capitalist receives regular annual returns on its investment.

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