A venture capitalist invests in a company by means of buying:
* 9 million shares for $2 a share and
* 8% bonds with a nominal value of $2 million, repayable at par in 3 years' time.
The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment.
The company has 10 million shares in issue.
What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?
Give your answer to the nearest $ million.
$ million.

• A.34, 35, 34000000, 35000000
• B.35, 35, 34000000, 35000000

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A company is wholly equity funded. It has the following relevant data:
* Dividend just paid $4 million
* Dividend growth rate is constant at 5%
* The risk free rate is 4%
* The market premium is 7%
* The company's equity beta factor is 1.2
Calculate the value of the company using the Dividend Growth Model.
Give your answer in $ million to 2 decimal places.
$ ? million

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WW is a quoted manufacturing company. The Finance Director has addressed the shareholders during WW's annual general meeting-She has told the shareholders that WW raised equity during the year and used the funds to repay a large loan that was maturing, thereby reducing WW's gearing ratio
At the conclusion of the Finance Director's speech one of the shareholders complained that it had been foolish for WW to have used equity to repay debt The shareholder argued that the Modigliani and Miller model (with tax) offers proof that debt is cheaper than equity when companies pay tax on their profits.
Which THREE arguments could the Finance Director have used in response to the shareholder?

• A.A lower gearing ratio will result in an increase in the value of the company
• B.Reducing the gearing ratio has reduced the financial risk of WW which will benefit shareholders
• C.WW was approaching a debt covenant limit and it was therefore important to reduce gearing.
• D.The Modigliani and Miller model would only be valid in practice if WW's shareholders were aware of the model and believed in its validity
• E.The shareholder was confusing the cost of capital with shareholder wealth
• F.A lower gearing ratio creates greater flexibility for WW in the future

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Company A has agreed to buy all the share capital of Company B.
The Board of Directors of Company A believes that the post-acquisition value of the expanded business can be computed using the "boot-strapping" concept.
Which of the following most accurately describes "boot-strapping" in this context?

• A.Forecasting the future free cash flows of the combined entities and discounting these at the bidder's Weighted Average Cost of Capital
• B.Adding together the current post-tax earnings of each company and multiplying this by the price/earnings ratio of the bidder
• C.Combining the pre-acquisition market capitalisation of each company
• D.Adding together the current post tax earnings of each company and multiplying this by the price earnings ratio of the acquired entity

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

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