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NEW QUESTION 51
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 will retain the benefit of movcTcnt3 in interest ratc3 below the floor limit.B. The cost of a collar is lower than the cost of a cap a one.C. The Treasurer will have to negotiate the options with Z's DarkD. The Treasurer should buy an interested rate floor and sell an interested cap ta the same time

Answer: B

 

NEW QUESTION 52
A private company was formed five years ago and is currently owned and managed by its five founders. The founders, who each own the same number of shares have generally co-operated effectively but there have also been a number of areas where they have disagreed
The company has grown significantly over this period by re-investing its earnings into new investments which have produced excellent returns
The founders are now considering an Initial Public Offering by listing 70% of the shares on the local stock exchange
Which THREE of the following statements about the advantages of a listing are valid?

A. Increases dividend payoutsB. Reduces agency conflictC. Increases the profile and reputation of the business.D. Provides an exit route for the foundersE. Helps access to wider sources of finance.

Answer: C,D,E

 

NEW QUESTION 53
A company is financed by debt and equity and pays corporate income tax at 20%.
Its main objective is the maximisation of shareholder wealth.
It needs to raise $200 million to undertake a project with a positive NPV of $10 million.
The company is considering three options:
* A rights issue.
* A bond issue.
* A combination of both at the current debt to equity ratio.
Estimations of the market values of debt and equity both before and after the adoption of the project have been calculated, based upon Modigliani and Miller's capital theory with tax, and are shown below:

Under Modigliani and Miller's capital theory with tax, what is the increase in shareholder wealth?

A. $10 million irrespective of financeB. $210 million if financed by equityC. $50 million if financed by debtD. $160 million if financed by a mixture of debt and equity

Answer: C

 

NEW QUESTION 54
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.

Answer:

Explanation:
65

 

NEW QUESTION 55
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