When valuing an unlisted company, a P/E ratio for a similar listed company may be used but adjustments to the P/E ratio may be necessary.
Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use?

• A.The relative lack of marketability of unlisted company shares.
• B.A profit item within the unlisted company's latest earnings which will not reoccur.
• C.The forecast earnings growth being relatively higher in the unlisted company.
• D.Unlisted companies being generally smaller and less established.
• E.A lower level of scrutiny and regulation for unlisted companies.
• F.Control premium not being included within the proxy p/e ratio used.

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A company is considering taking out $10.000,000 of floating rate bank borrowings to finance a new project.
The current rate available to the company on floating rate barrowings is 8%. The borrowings contain a covenant based on an interested cover of 5 times.
The project is expected to generate the following results:

At what interest rate on the floating rate borrowings is the bank covenant first breached?

• A.8.0%
• B.11.0%
• C.10.0%
• D.9.4%

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Hospital X provides free healthcare to all members of the community, funded by the central Government.
Hospital Y provides healthcare which has to be paid for by the individual patients. It is a listed company, owned by a large number of shareholders.
In comparing the above two organisations and their objectives, which THREE of the following statements are correct?

• A.X and Y have the same primary financial objective - to maximise shareholder wealth.
• B.Only Y is likely to have a mixture of financial and non-financial objectives.
• C.The performance of X will be appraised primarily on the basis of value for money.
• D.X is a not-for-profit organisation while Y is a for-profit organisation.
• E.X and Y will have the same primary non financial objective - provision of quality of health care.

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Company HJK is planning to bid for listed company BNM
Financial data for BNM for the financial year ended 31 December 20X1:

HJK is not forecasting any growth in these figures for the foreseeable future
Profit and cost data above should be assumed to be equivalent to cash flow data when answenng this question
Which THREE of the following approaches would be most appropriate for HJK to use to value the equity of BNM?

• A.Cash flows of $30 million (= S40 million net of tax at 25%) discounted at WACC minus the value of debt
• B.Share price x number of shares in issue plus retained profits
• C.Cash flows of S24 million discounted at the cost of equity
• D.Share price x number of shares in issue
• E.Cash flows of S14 million discounted at the cost of equity

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A UK based company is considering investing GBP1 ,000,000 in a project it the USA. It is anticipated that the project will yield net cash inflows of USD580.000 each year for the next three years. These surplus cash flows will be remitted to the UK at the end of each year.
Currently GBP1.00 is worth USD1.30.
The expected inflation rates in the two countries over the next four years are 2% in the UK and 4% in the USA.
Applying the purchasing power parity theory, which of the following represents the expected remittance at the end of year three, in GBP whole the nearest whole GBP)?

• A.GBP546,547
• B.GBP472,916
• C.GBP450,906
• D.GBP568,846

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