H Company has a fixed rate load at 10.0%, but wishes to swap to variable. It can borrow at LIBOR 8%.
The bank is currently quoting swap rates of 3.1% (bid) and 3.5% (ask).
What net rate will H Company pay if it enters into the swap?

• A.LIBOR +6.9%
• B.LIBOR +8%
• C.LIBOR +6.5%
• D.LIBOR +3.1%

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Company P is a pharmaceutical company listed on an alternative investment market.
The company is developing a new drug which it hopes to market in approximately six years' time.
Company P is owned and managed by a group of doctors who wish to retain control of the company. The company operates from leased laboratories with minimal fixed assets.
Its value comes from the quality of its research staff and their research.
The company currently has one approved drug which generates sufficient cashflow to cover day to day operations but not sufficient for major new research and development.
Company P wish to raise debt finance to develop the new drug.
Recommend which of the following types of debt finance would be most appropriate for Company P to help finance the development of this new drug.

• A.5% Bond repayable at par in 7 years' time.
• B.6% Eurobond repayable at par in 5 years' time.
• C.3% Commercial Paper.
• D.4% Convertible bond with a conversion ratio of 350 ordinary shares per bond.

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Company A plans to diversify by a cash acquisition of Company B an unlisted company in another country (Country B) which operates in a different industrial sector Company A already manufactures its product in Country B and has a loan denominated in Country B's currency Company A regularly suffers foreign exchange losses due to volatility in the exchange rate between the two countries' currencies in recent years.
Which THREE of the following appear to be be valid justifications of this diversification decision?

• A.The diversification will give Company A protection from political risk
• B.The diversification will enable Company A to enjoy production scale economies
• C.The diversification will give Company A greater protection from transaction risk.
• D.The diversification will give Company A greater protection from translation risk
• E.The diversification into another product market will lower business risk

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A company is considering either exporting its product directly to customers in a foreign country or establishing a manufacturing subsidiary in that country.
The corporate tax rate in the company's own country is 20% and 25% tax depreciation allowances are available.
Which THREE of the following would be considered advantages of establishing the subsidiary in the foreign country?

• A.The corporate tax rate in the foreign country is 40%.
• B.There is a double tax treaty between the company's domestic country and the foreign country.
• C.There are high customs duties payable on products entering the foreign country.
• D.Year 1 tax depreciation allowances of 100% are available in the foreign country.
• E.There are restrictions on companies wishing to remit profit from the foreign country.

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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.

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