NO.96 A manufacturing company based in Country R. where the currency is the R$, has an objective of maintaining an operating profit margin of at least 10% each year
Relevant data:
* The company makes sales to Country S whose currency is the SS It also makes sales to Country T whose currency is the T$ ” All purchases are from Country U whose currency is the US.
* The settlement of an transactions is in the currency of the customer or supplier
Which of the following changes would be most likely to help the company achieve its objective?

NO.97 A project requires an initial outlay of $2 million which can be financed with either a bank loan or finance lease.
The company will be responsible for annual maintenance under either option.
The tax regime is:
* Tax depreciation allowances can be claimed on purchased assets.
* If leased using a finance lease, tax relief can be claimed on the interest element of the lease payments and also on the accounting depreciation charge.
The trainee management accountant has begun evaluating the lease versus buy decision and has produced the following dat
a. He is not confident that all this information is relevant to this decision.

Using only the relevant data, which of the following is correct?

NO.98 H Company has a fixed rate load at 10.0%, but wishes to swap to variable. It can borrow at LIBOR 8%.
The bank is currently quoting swap rates of 3.1% (bid) and 3.5% (ask).
What net rate will H Company pay if it enters into the swap?

NO.99 A large, listed company is planning a major project that should greatly improve its share price in the long term.
These plans require a significant capital cost that the company plans to finance by debt.
All of the debt options being considered are for the same duration of time.
Which of the following sources of debt finance is likely to be the most expensive for the company over the full term of the debt?

NO.100 Company AB was established 6 years ago by two individuals who each own 50% of the shares.
Each individual heads a separate division within the company, which now has annual turnover of GBP10 million and employs 40 people.
Some of the employees are very highly paid as they are important contributors to the company’s profitability.
The owners of the company wish to realise the full value of their investment within the next 12 months.
Which TWO of the following options are most likely to be acceptable exit strategies to the two owners of the company?

NO.101 A product costs USD10 when purchased in the USA. The same product costs USD12 when it is purchased in the UK and the price in GBP is convened to USD.
Which of the following statement concerning purchasing power parity is correct?

NO.102 Company B is an all equity financed company with a cost of equity of 10%.
It is considering issuing bonds in order to achieve a gearing level of 20% debt and 80% equity.
These bonds will pay a coupon rate of 5% and have an interest yield of 6%.
Company B pays corporate tax at the rate of 25%.
According to Modigliani and Miller’s theory of capital structure with tax, what will be Company B’s new cost of equity?
A)

B)

C)

D)

NO.103 JAG and ZEB are two listed companies. JAG is approximately 20 times the size of ZEB.
10 days ago JAG made a hostile bid for ZEB. offering a share exchange.
The bid price represents a 10% profit to the shareholders of ZEB at today’s market prices to reflect the high levels of synergistic benefits that JAG expects to realise from the transaction.
Which of the following is the greatest future threat to the post-transaction value for JAG?

NO.104 An aerospace company is planning to diversify into car manufacturing.
Relevant data:

What is the the cost of equity to be used in the WACC for the project appraisal?
Give your answer in percentage, as a whole number.

NO.105 An entity prepares financial statements to 30 June.
During the year ended 30 June 20X2 the following events occurred:
1 July 20X1
* The entitiy borrowed $100 million at a variable rate of interest.
* In order to protect itself against the variability of its interest cashflows, the entity entered into a pay-fixed-receive-variable interest swap with annual settlements. The fair value of the swap on this date was zero.
30 June 20X2
* The entity received a net settlement of $2 million under the swap. After this net settlement, the fair value of the swap was $5 million – a financial asset.
The entity decides to use hedge accounting for this arrangement and has designated it as a cash flow hedge. The swap is a perfect hedge of the variability of the cash interest payments.
Which of the following describes the treatment of the settlement and the change in the fair value of the swap in the statement of profit or loss and other comprehensive income for the year ended 30 June 20X2?

NO.106 A company plans to raise $12 million to finance an expansion project using a rights issue.
Relevant data:
* Shares will be offered at a 20% discount to the present market price of $15.00 per share.
* There are currently 2 million shares in issue.
* The project is forecast to yield a positive NPV of $6 million.
What is the yield-adjusted Theoretical Ex-Rights Price following the announcement of the rights issue?

NO.107 A company is in the process of issuing a 10 year $100 million bond and is considering using an interest rate swap to change the interest profile on some or all of the $100 million new finance.
The company has a target fixed versus floating rate debt profile of 1:1. Before issuing the bond its debt profile was as follows:

Which of the following is the most appropriate interest rate swap structure for the company?

NO.108 Company A is based in country A with the AS as its functional currency. It expects to receive BS20 million from Company B in settlement of an export invoice.
The current exchange rate is A$1 =B$2 and the daily standard deviation of this exchange rate = 0 5% What is the one-day 95% VaR in AS?

NO.109 A company plans to cut its dividend but is concerned that the share price will fall. This demonstrates the _____________ effect

NO.110 Company A is a listed company that produces pottery goods which it sells throughout Europe. The pottery is then delivered to a network of self employed artists who are contracted to paint the pottery in their own homes. Finished goods are distributed by network of sales agents.The directors of Company A are now considering acquiring one or more smaller companies by means of vertical integration to improve profit margins.
Advise the Board of Company A which of the following acquisitions is most likely to achieve the stated aim of vertical integration?

NO.111 RST wishes to raise at least $40 million of new equity by issuing up to 10 million new equity shares at a minimum price of $3.00 under an offer for sale by tender. It receives the following tender offers:

What is the maximum amount that RST can raise by this share issue?
(Give your answer to the nearest $ million).

NO.112 A company plans a four-year project which will be financed by either an operating lease or a bank loan.
Lease details:
* Four year lease contract.
* Annual lease rentals of $45,000, paid in advance on the 1st day of the year.
Other information:
* The interest rate payable on the bank borrowing is 10%.
* The capital cost of the project is $200,000 which would have to be paid at the beginning of the first year.
* A salvage or residual value of $100,000 is estimated at the end of the project’s life.
* Purchased assets attract straight line tax depreciation allowances.
* Corporate income tax is 20% and is payable at the end of the year following the year to which it relates.
A lease-or-buy appraisal is shown below:
Which THREE of the following items are errors within the appraisal?