Company T is a listed company in the retail sector.
Its current profit before interest and taxation is $5 million.
This level of profit is forecast to be maintainable in future.
Company T has a 10% corporate bond in issue with a nominal value of $10 million.
This currently trades at 90% of its nominal value.
Corporate tax is paid at 20%.
The following information is available:
Which of the following is a reasonable expectation of the equity value in the event of an attempted takeover?

• A.$41.6 million
• B.$50.2 million
• C.$32.0 million
• D.$65.0 million

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A company wishes to raise new finance using a rights issue to invest in a new project offering an IRR of 10%
The following data applies:
* There are currently 1 million shares in issue at a current market value of $4 each.
* The terms of the rights issue will be $3.50 for 1 new share for 5 existing shares.
* The company's WACC is currently 8%.
What is the yield-adjusted theoretical ex-rights price (TERP)?
Give your answer to 2 decimal places.
$ ?

• A.4.06, 4.060
• B.4.06, 4.050

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

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An unlisted company:
* Is owned by the original founder and member of their families.
* Is growing more rapidly than other companies in the same industry.
* Pays a fixed annual divided
Which of the following methods would be the most appropriate to value this company's equity?

• A.Asset based approach including intangibles.
• B.P/E ratio of a listed company in the same industry.
• C.Divided valuation method.
• D.Discounted cash flow analysis based on forecast future free cash flows.

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A company intends to sell one of its business units, Company R by a management buyout (MBO).
A selling price of $100 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 30% a year on a compound basis over 5 years.
What is the minimum TOTAL equity value of Company R in 5 years time in order to meet the VCC's required return?
Give your answer to one decimal place.
$ ? million

• A.111.4, 111, 111.0, 111.1, 111.2, 111.3, 111.5, 111.6, 111.7
• B.111.4, 111, 111.0, 111.1, 111.2, 111.3, 111.5, 111.6, 111.8

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