A company has in a 5% corporate bond in issue on which there are two loan covenants.
* Interest cover must not fall below 3 times
* Retained earnings for the year must not fall below $3.5 million
The Company has 200 million shares in issue.
The most recent dividend per share was $0.04.
The Company intends increasing dividends by 10% next year.
Financial projections for next year are as follows:
Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?

• A.The company will be in breach of both covenants.
• B.The company will breach the covenant in respect of retained earnings only.
• C.The company will be in breach of the covenant in respect of interest cover only.
• D.The company will be in compliance with both covenants.

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A company needs to raise $40 million to finance a project. It has decided on a right issue at a discount of 20% to its current market share price.
There are currently 20 million shares in issue with a nominal value of $1 and a market price of $10.00 per share.

• A.1 new share for every 20 existing shares
• B.1 new share for every 4 existing shares
• C.1 new share for every 25 existing shares
• D.1 new share for every 5 existing shares

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Company A has a cash surplus.
The discount rate used for a typical project is the company's weighted average cost of capital of 10%.
No investment projects will be available for at least 2 years.
Which of the following is currently most likely to increase shareholder wealth in respect of the surplus cash?

• A.Investing in a 2 year bond returning 5% each year.
• B.Investing in the local money market at 4% each year.
• C.Maintaining the cash in a current account.
• D.Paying the surplus cash as a dividend at the earliest opportunity.

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Which of the following statements is true of a spin-off (or demerger)?

• A.Changes the ownership structure of the core entity by introducing new shareholders.
• B.Raises finance to fund new projects.
• C.Allows investors to identify the true value of the demerged business.
• D.Increases the risk of a takeover bid for the core entity.

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

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