The Treasurer of Z intends to use interest rate options to set an interest rate cap on Z's borrowings.
Which of the following statement is correct?

• A.The Treasurer should buy an interested rate floor and sell an interested cap ta the same time
• B.The cost of a collar is lower than the cost of a cap a one.
• C.The Treasurer will retain the benefit of movements in interest rates below the floor limit.
• D.The Treasurer will have to negotiate the options with Z's bank.

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A company intends to sell one of its business units. Company W, by a management buyout (MBO). A selling price of S200 million has been agreed.
The managers are discussing with a bank and a venture capital company (VCC) the following financing proposal.

The VCC requires a minimum return on its equity investment In the MBO of 35% a year on a compound basis over 5 years. What is the minimum total equity value of Company W in 5 years time in order to meet the VCC's required return? Give your answer to one decimal place.

• A.55
• B.65

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A government is currently considering the privatisation of the national airline. The shares are to be offered to the public via a fixed price Initial Public Offering (IPO).
Which THREE of the following statements are correct?

• A.The rational airline will receive significant financial resources as a direct result of the shares company shares in the IPO.
• B.The use of a fixed price offer will ensure that the government raises the maximum amount of finance.
• C.The rational airline employees will no longer be public sector employees following the completion of the privatisation
• D.The government will receive significant financial resources from the sale of its shareholding in the national airline.
• E.An IPO is normally underwritten

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Extracts from a company's profit forecast for the next financial year is as follows:

Since preparing the forecast, the company has decided to return surplus cash to shareholders by a share repurchase arrangement.
The share repurchase would result in the company purchasing 20% of the 2,000 million ordinary shares currently in issue and cancelling them.
Assuming the share repurchase went ahead, the impact on the company's forecast earnings per share will be an increase of:

• A.$0,075
• B.$0,125
• C.$0,050
• D.$0,100

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

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