Question: 1
A company has undertaken a transaction with its shareholders which has hadthe following impact on its financial statements:
* Retained earnings has decreased
* Share capital has increased
* Earnings per share has decreased
* The book value of equity isunchanged
The company has undertaken a:
Question: 2
A venture capitalist invests in a company by means of buying:
* 9million shares for$2 a share and
* 8% bonds with anominalvalue of $2 million, repayableat par in 3 years' time.
The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment.
The company has 10 million shares in issue.
What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?
Give your answer to the nearest$million.
$ million.
Question: 3
Two companies that operate in the same industry have different Price/Earnings (P/E)ratios as follows:
Which of the following is the most likely explanation of the different P/E ratios?
Question: 4
A company has announced a rights issue of 1 new share for every 4 existing shares.
Relevant data:
* Thecurrentmarketprice per shareis $10.00.
* Rights areto beissued at a 20% discount to the current price.
* The rate of return on the new funds raisedis expected tobe 10%.
* Therate of return on existing funds is5%.
What is the yield-adjustedtheoreticalex-rightsprice?
Give your answer totwodecimal places.
$?
Question: 5
Company H is considering thevaluation of an unlistedcompany which it hopes to acquire.
It has obtained thetarget company's financial statements.
Company Hhas been advised that the book value of net assets asshown inthe financial statementsof the target companydoes not provide a reliable indicator of their truevalue.
Advise the Board of Directors which of the following THREE statements aredisadvantagesof the net asset basis of valuation?
