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NEW QUESTION 39
A major energy company, GDE, generates and distributes electricity in country A.
The government of country A is concerned about rising inflation and has imposed price controls on GDE, limiting the price it can charge per unit of electricity sold to both domestic and commercial customers. It is likely that price controls will continue for the foreseeable future.
The introduction of price controls is likely to reduce the profit for the current year from $3 billion to $1 billion.
The company has:
* Distributable reserves of $2 billion.
* Surplus cash at the start of the year of $1 billion.
* Plans to pay a total dividend of $1.5 billion in respect of the current year, representing a small annual increase as in previous years. However, no dividends have yet been announced.
Which THREE of the following responses would be MOST appropriate for GDE following the imposition of price controls?

A. Raise funds by means of a rights issue in order to maintain historical dividend levels.B. Actively investigate potential new ways of generating revenue by the sale of related goods and services that are outside the scope of the price controls.C. Carry out a wide-ranging review of costs and staffing levels to identify possible cost savings and redundancies.D. Announce a reduction in the annual dividend to a more sustainable level given the new price controls regime.E. Actively look for a private equity investor to introduce new and innovative business and financial strategies to the business.

Answer: B,C,D

 

NEW QUESTION 40
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?

A. Economic forces will bring the prices in the USA and UK into line.B. This type of price deferential is a reliable baas for predicting currency movementsC. The exchange rate between the USD and GBP will change so that tie price differential on this product (and at other products) is eliminated.D. Economic forces should eliminate the price difference. but there could be market imperfections that permit it to persist.

Answer: D

 

NEW QUESTION 41
XYZ has a variable rate loan of $200 million on which it is paying interest of Liber ' 3%.
XYZ entered into a swap with AG bank to convert this to a fixed rate 8% loan. AB bank charges an annual commission of 0.4% for making this arrangement Calculate the net payment from KYZ to AB bank at the end of the first year if Libor was 2% throughout the year.
Give your answer in $ million, to one decimal place.

Answer:

Explanation:
22.8

 

NEW QUESTION 42
G purchased a put option that grants the right to cap the interest on a loan at 10.0%. Simultaneously, G sold a call option that grants the holder the benefits of any decrease if interest rates fall below 8.5%.
Which THREE possible s would be consistent with G's behavior?

A. G is concerned that interest rates may rise above 10.0%.B. G is willing to risk the loss of savings from a fall in interest rates if that offsets the cost of limiting the cost of rises.C. G is concerned that interest rates may fall below 10%.D. G is concerned that interest rates may rise above 8.5%.E. G's strategy is to ensure that its interest rates lie between 8.5% and 10.0%.

Answer: A,B,E

 

NEW QUESTION 43
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