CIMA F3 Dumps Questions Answers

CIMA F3 Dumps

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CIMA F3 Frequently Asked Questions

CIMA F3 Sample Questions

Question # 1

A company has some 7% coupon bonds in issue and wishes to change its interest rateprofile.It has decided to do this by entering into a plain coupon interest rate swap with it's bank.The bank has quoted a swap rate of: 6.0% - 6.5% fixed against LIBOR.What will the company's new interest rate profile be? 

A. VARIABLE at LIBOR
B. VARIABLE at LIBOR + 0.5%
C. VARIABLE at LIBOR + 1.0%
D. FIXED at 6.5% 

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Question # 2

Company Z has just completed the all-cash acquisition of Company A.Both companies operate in the advertising industry.The market considered the acquisition a positive strategic move by Company Z.Which THREE of the following will the shareholders of Company Z expect the company'sdirectors to prioritise following the acquisition?

A. The realisation of anticipated post-acquisition synergies.
B. The development of a dividend policy to meet the expectations of the target companyshareholders.
C. The integration and retention of key employees.
D. The regulatory approval required to complete the acquisition.
E. The retention of key customers of the acquired company.

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Question # 3

A company's dividend policy is to pay out 50% of its earnings. Its most recent earnings per share was $0.50, and it has just paid a dividend per share of $0.25. Currently, dividends are forecast to grow at 2% each year in perpetuity and the cost of equity is 10.5%. In order to grow its earnings and dividends, the company is considering undertaking a new investment funded entirely by debt finance. If the investment is undertaken: • Its cost of equity will immediately increase to 12% due to the increased finance risk. • Its earnings and dividends will immediately commence growing at 4% each year in perpetuity. Which of the following is the expected percentage change in the share price if the new investment is undertaken?

A. Increase = 8.3%
B. Increase = 2%
C. Increase = 10.5%
D. Decrease = 7.7% 

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Question # 4

A company based in Country D, whose currency is the D$, has an objective of maintainingan operating profit margin of at least 10% each year.Relevant data: • The company makes sales to Country E whose currency is the E$. It also makes salesto Country F whose currency is the F$. • All purchases are from Country G whose currency is the G$. • The settlement of all transactions is in the currency of the customer or supplier.Which of the following changes would be most likely to help the company achieve itsobjective?

A. The D$ strengthens against the E$ over time.
B. The F$ weakens against the D$ over time.
C. The D$ strengthens against the G$ over time.
D. The D$ weakens against the G$ over time. 

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Question # 5

WX, an advertising agency, has just completed the all-cash acquisition of a competitor, YZ. This was seen by the market as a positive strategic move byWX.Which THREE of the following will WX's shareholders expect the company's directors toprioritise following the acquisition?

A. The integration and retention of key employees of YZ.
B. The development of a dividend policy to meet the expectations of the YZ's shareholders.
C. The regulatory approval required to complete the acquisition.
D. The retention of YZ's key customers.
E. The realisation of anticipated post-acquisition synergies. 

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Question # 6

On 1 January 20X1, a company had:• Cost of equity of 10 0%.• Cost of debt of 5.0%• Debt of $100Mmilion• 100 million $1 shares trading at $4.00 each.On 1 February 20X1:• The company's share police fell to $3.00.• Debt and the cost of debt remained unchangedThe company does not pay tax.Under Modigliani and Miller's theory without lax. what is the best estimate of the movementin the cost of equity as a result of the fall in ne share price?

A. It will stay the same at 10.0%.
B. It will rise to 10.3%.
C. It will fall to 9.3%.
D. It will rise to 11.2%

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Question # 7

BBA is a wholly owned subsidiary of AAB BBA operates in country B where the currency isthe B$.The following is an extract from BBA's financial statements at 31 December 20X1:The following Information is relevant:" The bonds were trading at $110 per $100 on 31 December 20X1. "Operating profit ofBBA for the year ended 31 December 20X1 was S15 million• The P/E ratio is 8* Corporate income tax rate is 20%.The tax authorities m country B Implemented thin capitalisation rules based on the level ofgearing of the subsidiary, calculated as book value o( debt lo book value of equity The cutoff point for gearing used by the tax authorities for a company to be thinly capitalised is 75%. Which of the following statements is correct as at 31 December 20X1?

A. Gearing Is 71.43%. thin capitalisation rules are not breached
B. Gearing is 250%. thin capitalisation rules are breached
C. Gearing is 83.33%. thin capitalisation rules are breached
D. Gearing is 83.33%. thin capitalisation rules are not breached 

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Question # 8

Country X's short-term interest rates are slightly higher than its long-term rates. WhichTHREE of the following statements are correct?

A. This difference may reverse.
B. Country X's currency is expected to strengthen in the long-term.
C. Interest rates will definitely fall.
D. Interest rates are expected to fall.
E. A long-term borrower would save by taking out a short-term loan and then refinancing

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Question # 9

A new company was set up two years ago using the personal financial resources of thefounders.These funds were used to acquire suitable premises.The company has entered into a long-term lease on the premises which are not yet fullyfitted out.The founders are considering requesting loan finance from the company's bank to fund thepurchase of custom-made advanced technology equipment.No other companies are using this type of equipment.The company expects to continue to be profitable for the forseeable future.It re-invests some of its surplus cash in on-going essential research and development.Which THREE of the following features are likely to be considered negatives by the bankwhen assessing the company's credit-worthiness?

A. The equipment is advanced technology custom-made equipment.
B. The company will continue to remain profitable and to generate net cash.
C. The company premises are on a long-term lease but are not yet fully fitted out.
D. The founders invested their personal financial resources in the company. 
E. Essential on-going research and development expenditure is required.  

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Question # 10

A listed company follows a policy of paying a constant dividend. The following informationis available: • Issued share capital (nominal value $0.50) $60 million • Current market capitalisation $480 millionThe shareholders are requesting an increased dividend this year as earnings have beengrowing. However, the directors wish to retain as much cash as possible to fund newinvestments. They therefore plan to announce a 1-for-10 scrip dividend to replace the usualcash dividend.Assuming no other influence on share price, what is the expected share price followingthe scrip dividend?Give your answer to 2 decimal places. $ ?  

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Question # 11

Which of the following best explains why the interest rate parity model is highly effective inpractice?

A. Governments actively manage their exchange rates so that parity holds
B. Divergence from parity is impossible because exchange rates drive interest rates
C. Any divergence from parity can be observed by the market and corrected by arbitrage
D. Speculative forces drive the interest rates and exchange rates together to achieveparity. 

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Question # 12

Integrated reporting is designed to make visible the capitals on which the organisationdepends, and how the organisation uses those capitals to create value in the short,medium and long termWhich THREE of the following capitals are specifically identified in the Integrated Reporting Framework?

A. Manufactured
B. Research and Development
C. Community
D. Human
E. Financial 

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Question # 13

STU has relatively few tangible assets and is dependent for profits and growth on the highvalue individuals it employs. Which of the following statements best explains why the net asset valuator method’s considered unstable for TU?

A. STU does not account for its tangible assets 
B. STU does not account for its intangible assets.
C. STU accounts for its intangible assets at net realisable value.
D. STU accounts for its intangible assets at historical value.

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Question # 14

A company is currently all-equity financed.The directors are planning to raise long term debt to finance a new project.The debt:equity ratio after the bond issue would be 30:60 based on estimated marketvalues.According to Modigliani and Miller's Theory of Capital Structure without tax, the company'scost of equity would:

A. stay the same.
B. decrease.
C. increase.
D. increase or decrease depending on the bond's coupon rate. 

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Question # 15

Company M plans to bid for Company J. Company M has 20 million shares in issue and acurrent share price of $10.00 before publicly announcing the planned takeover. Company Jhas 10 million shares in issue and a current share price of $4.00.The directors of Company M are considering an all-share bid of 1 Company M shares for 2Company J shares.Synergies worth $20m are expected from the acquisition.What is the likely change in wealth for Company M's shareholders (in total) if the bid isaccepted?Give your answer to the nearest $ million.$ ? million  

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Question # 16

Which THREE of the following remain unchanged over the life of a 10 year fixed rate bond? 

A. The coupon rate
B. The yield
C. The market value
D. The nominal value
E. The amount payable on maturity

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Question # 17

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 pricesto reflect the high levels of synergistic benefits that JAG expects to realise from thetransaction.Which of the following is the greatest future threat to the post-transaction value for JAG?

A. Forecast synergistic benefits are not realised.
B. New shareholders acquired from ZEB demand a higher dividend payout than JAG isused to.
C. Negative market response to the bid.
D. New shareholders acquired from ZEB withdraw their investment by selling their shareswithin 12 months. 

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Question # 18

A large multi-divisional company in the food processing and distribution business isconducting a strategic review. The divisions all compete in the same market.The sale of one of its underperforming food processing divisions to the divisionalmanagement team is currently being considered. The purchase by the divisionalmanagement team will require venture capital finance.Which THREE of the following are likely to influence the multi-divisional company'sdecision on whether or not to sell the under-performing division to the management team?

A. The divisional management team has detailed confidential information about theoperation of the other divisions.
B. The divisional management team has skills and experience that are important for thefuture successful operation of other divisions.
C. The ability of the management team to raise the finance required to complete thepurchase of the division at a reasonable price.
D. The quality of the management team and its ability to manage the divested divisionsuccessfully.
E. The specific conditions imposed on the management team by the venture capitalprovider. 

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Question # 19

Company WWW is considering making a takeover bid for Company KKA Company KKA's current share price is $5.00 Company WWW is considering either " A cash payment of $5.75 for each share in Company KKA " A 5 year corporate bond with a market value of $90 in exchange for 15 shares in Company KKA Calculate the highest percentage premium which Company KKA shareholders will receive.

A. Corporate bond premium = 80% 
B. Corporate bond premium = 20%
C. Cash premium = 10%
D. Cash premium = 15%

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Question # 20

A company has 6 million shares in issue. Each share has a market value of $4.00. $9 million is to be raised using a rights issue. Two directors disagree on the discount to be offered when the new shares are issued. • Director A proposes a discount of 25% • Director B proposes a discount of 30% Which THREE of the following statements are most likely to be correct?

A. The theoretical ex-rights price will be higher under Director B's proposal than under Director A's proposal.
B. More shares will be issued under Director B's proposal than under Director A's proposal.
C. The rights issue price will be $3.00 under Director A's proposal.
D. The terms of the rights issue will be one new share for every two existing shares under Director A's proposal. 
E. Shareholder wealth will be higher under Director A's proposal than under Director B's proposal. 

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Question # 21

A large, listed company in the food and household goods industry needs to raise $50million 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 theborrowings. The company already has a commercial paper programme in place and has agood relationship with its bank.Which of the following is likely to be the most cost effective method of borrowing themoney?

A. Bank overdraft
B. 6 month term loan
C. Treasury Bills
D. Commercial paper

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Question # 22

A company is planning to repurchase some of its shares. Relevant details are as follows: • 100 million shares in issueQuestion No : 370Question No : 371 FILL IN THE BLANKCIMA F3 : Practice Test231 • Current share price $5 • 5 million shares to be repurchased • 10% repurchase premium • Repurchased shares to be cancelledWhat would you expect the share price after the repurchase to be?Give your answer to two decimal places.$ ?

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Question # 23

A venture capitalist is considering investing in a management buy-out that would befinanced as follows:• Equity from managers• Equity from a venture capitalist• Mezzanine debt finance from a venture capitalist• Senior debt from a bankThe venture capitalist is planning to work with the management to grow the business inanticipation of an initial public offering within five years.However, the cash forecast shows a potential shortage of funds in the first year and theventure capitalist is evaluating the potential impact of cash being generated in the first yearbeing significantly lower than forecast.The most important risk that a shortage of cash would create for the management buyout isthat the new company has insufficient funds to:

A. pay interest on bank debt finance.
B. pay contractual director bonuses.
C. pay dividends to venture capitalist.
D. invest in new capital projects required to generate growth.

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Question # 24

A company has accumulated a significant amount of excess cash which is not required forinvestment for the foreseeable future.It is currently on deposit, earning negligible returns.The Board of Directors is considering returning this excess cash to shareholders using ashare repurchase programme.The majority of shareholders are individuals with small shareholdings.Which THREE of the following are advantages of the company undertaking a sharerepurchase programme? 

A. Individual shareholders can realise their investment if they wish.
B. The earnings per share should increase for the shareholders who do not sell their shares.
C. It reduces excess cash which might have been attractive to predators.
D. It reduces the amount of cash for potential future investment opportunities.
E. Institutional investors generally prefer a constant predictable income in the form ofdividends.

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Question # 25

A company enters into a floating rate borrowing with interest due every 12 months over thefive year life of the borrowing.At the same time, the company arranges an interest rate swap to swap the interest profileon the borrowing from floating to fixed rate.These transactions are designated as a hedge for hedge accounting purposes under IAS39 Financial Instruments: Recognition and Measurement.Assuming the hedge is considered to be effective, how would the swap be accountedfor 12 months later? 

A. The swap would be shown at nominal value in the statement of financial position and thechange in value posted to other comprehensive income.
B. The swap would be shown at nominal value in the statement of financial position and thechange in value posted to profit or loss.
C. The swap would be shown at fair value the statement of financial position and thechange in value posted to other comprehensive income.
D. The swap would be shown at fair value the statement of financial position and thechange in value posted to profit or loss.

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Question # 26

ADC is planning to acquire DEF in order to benefit from the expertise of DEF's owner‘managers Both are Listed companies. ADC is trying to decide whether to offer cash orshares in consideration for DEF's shares.Which THREE of the following are advantages to ABC of offering shares to acquire CEF?

A. It shares tie benefits of future growth with the DCT shareholder.
B. It dilutes ownership in ABC.
C. It incentivises DEF to continue creating value for the combined group
D. It results in a tax saving for ABC.
E. The risk of poor future performance of the acquisition is shared with the DEF companyshareholder.
F. It preserves liquidity 

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Question # 27

A listed company with a growing share price plans to finance a fouryear research project with debt. The main criterion for the finance is to minimise the annual cashflow payments on the debt. The research will be sold at the end of the project. Which of the following would be the most suitable financing method for the company? 

A. Bonds with warrants
B. Finance lease
C. Standard bonds
D. Bank loan 

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Question # 28

An all equity financed company reported earnings for the year ending 31 December 20X1 of $8 million. One of its financial objectives is to increase earnings by 5% each year. In the year ending 31 December 20X2 it financed a project by issuing a bond with a $1 million nominal value and a coupon rate of 4%. The company pays corporate income tax at 20%. If the company is to achieve its earnings target for the year ending 31 December 20X2, what is the minimum operating profit (profit before interest and tax) that it must achieve?

A. $6.69 million 
B. $10.50 million 
C. $8.40 million 
D. $10.54 million

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Question # 29

A company needs to raise $20 million to finance a project.It has decided on a rights issue at a discount of 20% to its current market share price.There are currently 20 million shares in issue with a nominal value of $1 and a market priceof $5 per share.Calculate the terms of the rights issue. 

A. 1 new share for every 4 existing shares
B. 1 new share for every 20 existing shares
C. 1 new share for every 5 existing shares
D. 1 new share for every 25 existing shares 

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Question # 30

A listed company in a high technology industry has decided to value its intellectual capital using the Calculated Intangible Value method (CIV). Relevant data for the company: • Pays corporate income tax at 30% • Cost of equity is 9%, pre-tax cost of debt is 7% and the WACC is 8% • The value spread has been calculated as $26 million Calculate the CIV for the company.

A. 228 million
B. 289 million 
C. 531 million 
D. 325 million 

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Question # 31

HHH Company has a fixed rate loan at 10.0%, but wishes to swap to variable. It can borrow at the risk-free rate +8%. The bank is currently quoting swap rates of 3.1% (bid) and 3.5% (ask). What net rate will HHH Company pay if it enters into the swap?

A. Risk-free rate +6.9%
B. Risk-free rate +8% 
C. Risk-free rate+3.1%
D. Risk-free rate +6.5%

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Question # 32

Company A has just announced a takeover bid for Company B. The two companies arelarge 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 notconsider it to be in the best interests of shareholdersWhich THREE of the following are considered to be legitimate post-offer defences?

A. Have all the assets independently professionally revalued to demonstrate that the offerundervalues the company
B. Alter the memorandum and articles of association to state that a minimum of 75% ofshareholders must agree to the bid before it can proceed
C. Make a counter bid for Company A provided such an acquisition could enhanceCompany B's shareholder wealth
D. Publish very optimistic financial forecasts for Company B even though the Board ofDirectors realises that these are highly unlikely to be achievable
E. Refer the bid to the competition authorities to try to have the bid prohibited oncompetition grounds

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Question # 33

On 31 October 20X3: • A company expected to agree a foreign currency transaction in January 20X4 for settlement on 31 March 20X4. • The company hedged the currency risk using a forward contract at nil cost for settlement on 31 March 20X4. • The transaction was correctly treated as a cash flow hedge in accordance with IAS 39 Financial Instruments: Recognition and Measurement. On 31 December 20X3, the financial year end, the fair value of the forward contract was $10,000 (asset). How should the increase in the fair value of the forward contract be treated within the financial statements for the year ended 31 December 20X3?

A. Not recognised in 20X3 as the forward contract is not settled until after the year end. 
B. Not recognised in 20X3 as the gain will be offset by a loss on the hedged transaction.
C. A $10,000 profit will be recognised within the Income Statement.
D. A $10,000 profit will be recognised within other comprehensive income. 

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Question # 34

SUP is a large supermarket chain. It produces many 'own brand' goods in Country S where the parent company is located. These goods are sold in SUP's supermarkets in Country S as well as being sold at a 'transfer price' to SUP companies located in foreign countries for sale in the SUP supermarkets located in that country. Which of the following factors is the most important for SUP from a lax planning and compliance viewpoint when setting prices for the 'own brand' goods sold to other group companies'?

A. Complying with tax thin capitalisation regulations that apply in both tax jurisdictions.
B. The price should be higher than for other group companies if the group company that is purchasing the goods has a higher marginal tax rate than the SUP parent company.
C. The price should be much lower than average if the group company that is purchasing the goods has a higher marginal tax rate than the SUP parent company.
D. The price should be the same as the price that would be charged by SUP to other, independent, supermarkets that are located in the same foreign country as the group company that requires the goods.

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Question # 35

Company R is a major food retailer. It wishes to acquire Company S, a food manufacturer. Company S currently supplies many stores owned by Company R with food products that it manufactures. Company S is of similar size to Company R but has a lower credit rating. Which of the following is most likely to be a synergistic benefit to R on purchasing S?

A. Savings due to a reduction in purchase costs and more control over the value chain.
B. Cost savings due to reducing the range of products manufactured by Company S.
C. Lower cost of borrowing due to the acquistion of a company with a different credit rating.
D. Reduced competition resulting in the ability to raise retail selling prices for food products.

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Question # 36

The long-term prospects for inflation in the UK and the USA are 1% and 4% per annum respectively.The GBP/USD spot rate is currently GBP/USD1.40Using purchasing power parity theory, what GBP/USD spot rate would you expect to see insix months’ time?

A. GBP/USD1.38
B. GBP/USD1.44
C. GBP/USD1.42
D. GBP/USD1.36 

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Question # 37

A national rail operating company has made an offer to acquire a smaller competitor. Which of the following pieces of information would be of most concern to the competition authorities? 

A. After the acquisition, the board proposes to increase prices on some routes not servicedby other rail operators.
B. After the acquisition, the board proposes to withdraw some of the less profitableservices.
C. The board informed a major institutional shareholder about the proposed acquisitionbefore informing other shareholders.
D. The acquisition is likely to result in significant redundancies of staff currently working forthe smaller rail operator. 

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Question # 38

A company has stable earnings of S2 million and its shares are currently trading on a priceearnings multiple {PIE) of 10 times. It has10 million shares in issue.The company is raising S4 million debt finance to fund an expansion of its existingbusiness which is forecast to increase annual earnings straight away by 25% and thenremain at that level for the foreseeable future. The corporation tax rate is 20%. It isexpected that the P/E will reduce to 8 times over the next year.What is the most likely change in shareholder wealth resulting from this plan?

A. Shareholder wealth will increase by $4 million.
B. Shareholder wealth will increase by $3.2 million.
C. Shareholder wealth will increase by $5 million
D. No change in shareholder wealth. 

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Question # 39

Company ADE is an unlisted company; it needs to raise a significant amount of finance tofund future expansion. The directors are considering listing the company on the local stockexchange The following discussions have taken place between some of the directors:Director A - We consider a public issue of bonds in the capital markets, we don't need tolist to issue the bonds which will save time and money.Director B - We should list on the Alternative Investment Market (AIM) and not the mainmarket to avoid any regulatory requirementsDirector C - We should remain unlisted; we can access an unlimited amount of equityfinance through a rights issueDirector D - Listing will increase Company ADE's ability to raise new equity and debtfinance in the future.Director E - If we list, Company ADE will be a more likely target for a takeover than if weremain unlisted.Which TWO of the directors' statements are correct?

A. Director A
B. Director B
C. Director C
D. Director D
E. Director E 

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Question # 40

A company is undertaking a lease-or-buy evaluation, using the post-tax cost of bankborrowing as the discount rate.Details of the two alternatives are as follows:Buy option: • To be financed by a bank loan • Tax depreciation allowances are available on a reducing-balance basis • Assets depreciated on a straight-line basisLease option: • Finance lease • Maintenance to be paid by the lessee • Tax relief available on interest payments and book depreciationWhich THREE of the following are relevant cashflows in the lease-or-buy appraisal?

A. Tax relief on tax depreciation allowances
B. Bank loan payments
C. Maintenance payments
D. Lease payments
E. Tax relief on the book depreciation 

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Question # 41

Which TIIRCC of the following are most likely to reduce the long term credit rating co a company?

A. The issue of new shares where the funds raised are invested in a project that has an NPV of nil. 
B. The issue of a new bond where the funds raised are invested in a project that has an NPV of nil.
C. The issue of new shares where the funds raised are invested in expanding into a new nigh risk market.
D. Loss of a major customer that contributed 30% of sales revenue.
E. Disposal of a loss-making division where the funds raised will be used to pay a special dividend to shareholders. 

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Question # 42

The value of a call option will increase because of:

A. An increase in the strike price. 
B. A decrease in the volatility of the share.
C. An increase in the time to expiry.
D. A decrease in the market value of the share.

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Question # 43

ZZZ is a listed company based in Brinland. a European country. It is the largest owner and operator of residential care homes for elderly people in Brinland Most of the residential care homes in Brinland are run by small private operators, and the standards of cafe are extremely variable However. 22Z has developed a good reputation because its client service is considered to be extremely good even though its prices are higher than those of most of its competitors. ZZZ has expanded rapidly in the last few years, partly by acquisition and partly by organic growth consequently, the company's share price now stands at a record high, and the dividend declared at the end of the most recent accounting period was 10% higher than the previous year's dividend. The Brinland government has recently set up a regulatory body to monitor the residential care homes industry. The regulatory body is considering introducing a variety of regulations to improve the customer experience in the industry. Following a period of consultation and investigation, the regulatory body is expected to announce a range of new regulations in the near future. The directors of ZZZ are concerned that the new regulations may adversely affect their company Which THREE of the following new regulations are likely to have the greatest negative impact on ZZTs performance?

A. Imposition of a minimum staff to client ratio.
B. Price controls, setting a maximum price that providers can charge.
C. Monopoly controls, forcing large operators to dispose of some care homes.
D. Imposition of a one-off "windfall" tax to fund training courses for carers across the industry. 
E. Fines for companies that miss specified service level targets.

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Question # 44

An all-equity financed company currently generates total revenue of $50 million.Its current profit before interest and taxation (PBIT) is $10 million. Due to difficult trading conditions, the company expects its total revenue to be constantnext year, although some margins will reduce.It forecasts next year's PBIT will fall to 18% on 40% of its revenue, but that the PBIT onthe other 60% of its revenue will be unaffected.The rate of corporate tax is 20%.What is the forecast percentage reduction in next year's Earnings?

A. Reduction of 0.8%
B. Reduction of 2.0%
C. Reduction of 4.0%
D. Reduction of 0%

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Question # 45

A company is reporting under IFRS 7 Financial Instruments: Disclosures for the first timeand the directors are concerned about whether this will lead to the disclosure of informationthat could affect the company's share price.The company is based in a country that uses the A$ but 40% of revenue relates to exportsales to the USA and priced in US$.When the company reports under IFRS 7 for the first time, the share price is most likely to:

A. Increase due to greater clarity of information available on the extent of US$ risks andhow they are managed.
B. Stay the same since US$ risk can already be quantified from segmental analysisdisclosures included elsewhere in the annual report.
C. Decrease since investors place a lower value on higher risk businesses.
D. Either increase or decrease depending on market reaction to new information on howfinancial risk is managed. 

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Question # 46

NNN is a company financed by both equity and debt. The directors of NNN wish to calculate a valuation of the company's equity and at a recent board meeting discussed various methods of business valuation. Which THREE of the following are appropriate methods for the directors of NNN to use in this instance?

A. Total earnings multiplied by a suitable price-earnings ratio.
B. Cash flow to all investors discounted at WACC less the value of debt.
C. Cash flow to all investors discounted at WACC. 
D. Cash flow to equity discounted at the cost of equity less the value of debt.
E. Cash flow to equity discounted at the cost of equity. 

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Question # 47

A company wishes to raise new finance using a rights issue to invest in a new project offering an IRR of 10% The following data applies: • There are currently 1 million shares in issue at a current market value of $4 each. • The terms of the rights issue will be $3.50 for 1 new share for 5 existing shares. • The company's WACC is currently 8%. What is the yield-adjusted theoretical ex-rights price (TERP)? Give your answer to 2 decimal places. $ ?

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