A consultancy company is dependent for profits and growth on the high value individuals it employs.
The company has relatively few tangible assets.
Select the most appropriate reason for the net asset valuation method being considered unsuitable for such a company.

• A.It does not account for the intangible assets.
• B.It accounts for the intangible assets at historical value.
• C.It accounts for intangible assets at net realisable value.
• D.It does not account for tangible assets.

Comment: *

Name: *

Email: *

Verification: *

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

Comment: *

Name: *

Email: *

Verification: *

The directors of a unlisted manufacturing company have prepared a valuation of their company using the price-earning method.
Their calculation is:
Value if the company's equity = $6 million x 10 =$60 million where.
* $6 million is the company's reported profit before interested and tax in the most recent accounting period and
* 10 is the average price-earnings ratio for all listed companies
Which THREE of the following are weakness of this valuation?

• A.Profit after tax should have been used in the calculation instead of profit before interest and tax.
• B.The price-earnings ratio should have been an average for companies in the same industry sector rather than alI listed companies
• C.The price-earnings valuation method gives a value for the entire entity not Just a value of the equity.
• D.The equity result needs to be uplifted in recognition that this is an unlisted company.
• E.A forecast of sustainable profit should have been used instead of a historical figure

Comment: *

Name: *

Email: *

Verification: *

A listed company plans to raise $350 million to finance a major expansion programme.
The cash flow projections for the programme are subject to considerable variability.
Brief details of the programme have been public knowledge for a few weeks.
The directors are considering two financing options, either a rights issue at a 20% discount to current share price or a long term bond.
The following data is relevant:

The company's share price has fallen by 5% over the past 3 months compared with a fall in the market of 3% over the same period.
The directors favour the bond option.
However, the Chief Accountant has provided arguments for a rights issue.
Which TWO of the following arguments in favour of a right issue are correct?

• A.The rights issue will lead to less pressure on the operating cash flows of the programme.
• B.The issue of bonds might limit the availability of debt finance in the future.
• C.The WACC will decrease assuming Modigliani and Miller's Theory of Capital Structure without taxes applies.
• D.The administrative costs of a rights issue will be lower.
• E.The recent fall in the share price makes a rights issue more attractive to the company.

Comment: *

Name: *

Email: *

Verification: *

Company R is a major food retailer. It wishes to acquire Company S, a food manufacturer.
Company S currently supplies many stores owned by Company R with food products that it manufactures.
Company S is of similar size to Company R but has a lower credit rating.
Which of the following is most likely to be a synergistic benefit to R on purchasing S?

• A.Savings due to a reduction in purchase costs and more control over the value chain.
• B.Reduced competition resulting in the ability to raise retail selling prices for food products.
• C.Cost savings due to reducing the range of products manufactured by Company S.
• D.Lower cost of borrowing due to the acquistion of a company with a different credit rating.

Comment: *

Name: *

Email: *

Verification: *