A company's current profit before interest and taxation is $1.1 million and it is expected to remain constant for the foreseeable future.
The company has 4 million shares in issue on which the earnings yield is currently 10%. It also has a $2 million bond in issue with a fixed interest rate of 5%.
The corporate income tax rate is 20% and is expected to remain unchanged.
Which of the following is the best estimate of the current share price?

• A.$1.10
• B.$2.00
• C.$2.75
• D.$2.50

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Two companies that operate in the same industry have different Price/Earnings (P/E) ratios as follows:

Which of the following is the most likely explanation of the different P/E ratios?

• A.Company B has higher gearing than Company A.
• B.Company B has higher business risk than Company A.
• C.Company B has a greater profit this year than Company A.
• D.Company B has higher expected future growth than Company A.

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Company A is a listed company that produces pottery goods which it sells throughout Europe. The pottery is then delivered to a network of self employed artists who are contracted to paint the pottery in their own homes.
Finished goods are distributed by network of sales agents.The directors of Company A are now considering acquiring one or more smaller companies by means of vertical integration to improve profit margins.
Advise the Board of Company A which of the following acquisitions is most likely to achieve the stated aim of vertical integration?

• A.A pottery factory in the Middle East.
• B.A listed international logistics firm.
• C.A company that produces accessories.
• D.A company in a similar market to Company A.

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Which TIIRCC of the following are most likely to reduce the long term credit rating co a company?

• A.The issue of new shares where the funds raised are invested in expanding into a new nigh risk market.
• B.The issue of new shares where the funds raised are invested in a project that has an NPV of nil.
• C.Disposal of a loss-making division where the funds raised will be used to pay a special dividend to shareholders.
• D.The issue of a new bond where the funds raised are invested in a project that has an NPV of nil.
• E.Loss of a major customer that contributed 30% of sales revenue.

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An unlisted software development company has recently reported disappointing results. This was partly due to weak economic conditions but also because of its poor competitive position. The company has a number of exciting development opportunities which would enable it to achieve significant future growth. The company's growth potential has been hindered by its inability to secure sufficient new finance.
To enable the company raise new finance the Directors are considering working forwards an IPO in 10 years and accepting finance from a venture capitalist in order support in the intervening period.
The directors are keen to retain a controlling stake in the company and full representation on the board. They therefore require venture capitalists to provide funds as a mix of debt and equity and not soley equity finance.
Which THREE of the following are most likely to disrupt the directors' plans to use venture capital finance?

• A.Venture capitalists normally expect an exit strategy sconer than the planned IPO in 10 years'time.
• B.Venture capitalists only provide equity finance and will therefore not be interested in providing a combination of debt and equity finance.
• C.Venture capitalists normally expect at least one seat on the board.
• D.The venture capital finance offered is much more expensive than expected.
• E.Venture capitalists always require ownership of more than 50% of the shares in a company to ensure control.

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