Company E is a listed company. Its directors are valuing a smaller listed company, Company F, as a possible acquisition.
The two companies operate in the same markets and have the same business risk.
Relevant data on the two companies is as follows:

Both companies are wholly equity financed and both pay corporate tax at 30%.
The directors of Company E believe they can "bootstrap" Company F's earnings to improve performance.
Calculate the maximum price that Company E should offer to Company F's shareholders to acquire the company.
Give your answer to the nearest $million.

• A.1,890
• B.3,150
• C.2,700
• D.4,500

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A company has an opportunity to invest in a positive net present value project, but the project would require debt finance that would push the company's gearing ever a limit imposed by a debt covenant on an existing loan.
Which THREE of the following actions could be taken by the company?

• A.The company could seek alternative sources of finding, such as a reduction in the annual dividend payment, to finance the project.
• B.The directors could proceed will the project because their primary duly is maximise shared older wealth, even if that conflicts with lenders' interest.
• C.The project could be foregone if it cannot be funded without breaching the covenant
• D.The company could approach its existing Lenders to negotiate a relaxation of :he conditions imposed by the covenant.
• E.The directors could meet with key shareholder to discuss whether they wish the project proceed despite the breach of the covenant
• F.The project could proceed if the cash inflows from the project will enable some of the debt to be repaid before the end of the financial year and so the breach of covenant may never be detected

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Companies L. M N and O:
* are based in a country that uses the RS as its currency
* have an objective to grow operating profit year on year
* have the same total levels of revenue and cost
* trade with companies or individuals in the United States. All import and export trade with companies or individuals in the United States is priced in US$.
Typical import/export trade for each company in a year are as follows:

Which company's growth objective is most sensitive to a movement in the USS / RS exchange rate?

• A.Company N
• B.Company L
• C.Company M
• D.Company O

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A listed company follows a policy of paying a constant dividend. The following information is available:
* Issued share capital (nominal value $0.50) $60 million
* Current market capitalisation $480 million
The shareholders are requesting an increased dividend this year as earnings have been growing. However, the directors wish to retain as much cash as possible to fund new investments. They therefore plan to announce a 1-for-10 scrip dividend to replace the usual cash dividend.
Assuming no other influence on share price, what is the expected share price following the scrip dividend?
Give your answer to 2 decimal places.
$ ?

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A listed publishing company owns a subsidiary company whose business activity is training.
It wishes to dispose of the subsidiary company.
The following information is available:

The board of the publishing company believe that the value of the subsidiary company, and hence the value of the equity invested in it, can be determined by calculating the present value of the subsidiary's free cashflows.
Which of the following is the most appropriate discount rate to use when determining the enterprise value of the company?

• A.A WACC that the reflects the gearing of the publishing company and the equity beta factor of the publishing company.
• B.A WACC that reflects the gearing of the subsidiary company and the asset beta of a listed company that provides training activities.
• C.A WACC that reflects the gearing of the publishing company and the asset beta of a listed company that provides training activities.
• D.A cost of equity that reflects the asset beta of a listed company that provides training activities.

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