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NEW QUESTION 23
A large, listed company in the food and household goods industry needs to raise $50 million for a period of up to 6 months.
It has an excellent credit rating and there is almost no risk of the company defaulting on the borrowings.
The company already has a commercial paper programme in place and has a good relationship with its bank.
Which of the following is likely to be the most cost effective method of borrowing the money?

A. Treasury BillsB. Bank overdraftC. Commercial paperD. 6 month term loan

Answer: C

 

NEW QUESTION 24
The Board of Directors of a listed company is considering the company's dividend/retentions policy.
The inflation rate in the economy is currently high and is expected to remain so for the foreseeable future.
The board are unsure what impact the high level of inflation might have on the dividend policy.
Which THREE of the following statements are true?

A. The high inflation rate does not need to be considered when determining the dividend policy.B. The impact of inflation on the cash flows should be considered when formulating the dividend policy.C. Retained earnings for reinvestment will have to earn a return in excess of the inflation level.D. Consideration should be given to the fact that shareholders will have a desire for real growth in dividend.E. In periods of high inflation 100% of earnings should always be paid out as dividends so that shareholders can protect their wealth against the impact of inflation.

Answer: B,C,D

 

NEW QUESTION 25
Company A has just announced a takeover bid for Company B.
The two companies are large companies in the same industry_ The bid is considered to be hostile.
Company B's Board of Directors intends to try to prevent the takeover as they do not consider it to be in the best interests of shareholders Which THREE of the following are considered to be legitimate post-offer defences?

A. Refer the bid to the competition authorities to try to have the bid prohibited on competition groundsB. Alter the memorandum and articles of association to state that a minimum of 75% of shareholders must agree to the bid before it can proceedC. Have all the assets independently professionally revalued to demonstrate that the offer undervalues the companyD. Make a counter bid for Company A provided such an acquisition could enhance Company B's shareholder wealthE. Publish very optimistic financial forecasts for Company B even though the Board of Directors realises that these are highly unlikely to be achievable

Answer: A,B,D

 

NEW QUESTION 26
Modigliani and Miller are the main proponents of the view that the dividend policy is irrelevant to the value of a company's shares.
They argue that a company that continually reinvests its entire earnings would generate the same shareholder wealth if it engaged in a policy of high dividends and financed its expansion with funds obtained from rights issues.
Which THREE of the following statements are assumptions that are required in order to support this proposition?

A. There are no transaction costs involved in the issue of new shares (including rights issues).B. The capital markets are efficient markets.C. Investors act in a rational manner.D. Investors do not always have access to perfect information.E. There is a multiplicity of corporate and personal income tax rates.

Answer: A,B,C

Explanation:
Discursive_F0

 

NEW QUESTION 27
TTT pic is a listed company. The following information is relevant:

TTT pic's board is considering issuing new 6% irredeemable debt to re-purchase equity. This is expected to change TTT pic's debt to equity mix to 40: 60 by market value. The corporate tax rate is 20%.
What will be TTT pic's WACC following this change in capital structure?

A. 13.43%B. 11.09%C. 11.66%D. 12.67%

Answer: B

 

NEW QUESTION 28
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