A company plans toacquirenew machinery.
It has two financing options; buy outrightusing a bank loan, ora finance lease.
Which of the following is an advantage of a finance lease compared with a bank loan?
The directors of a unlisted manufacturing company have prepared a valuation of their company using the price-earning method.
Their calculation is:
Value if the company's equity = $6 million x 10 =$60 million where.
$6 million is the company's reported profit before interested and tax in the most recent accounting period and
10 is the average price-earnings ratio for all listed companies
Which THREE of the following are weakness of this valuation?
Company A plans to acquire Company B in a 1-for-1 share exchange.
Pre-acquisition information is as follows:
Post-acquisition information is as follows:
Annual earnings are expectedto increaseby $4 million.
The P/E multiple of the combined company is expected to be 12 times.
If the acquisition proceeds, whatis theexpected percentage increase inthe post acquisitionshare priceof Company A?
An unlisted company is attempting to value its equity using the dividend valuationmodel.
Relevant information is as follows:
* A dividend of$500,000 has just been paid.
* Dividend growth of 8% is expected for the foreseeable future.
* Earnings growth of 6% is expected for the foreseeable future.
* The cost of equity of a proxy listed company is 15%.
* The risk premium required due tothe companybeing unlisted is 3%.
The calculationthat has been performedis as follows:
Equity value = $540,000 / (0.18 - 0.08) = $5,400,000
What is thefaultwith the calculation that has been performed?
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% eachyear.
In the year ending 31 December 20X2 itfinanced a project byissuing a bondwith a $1 million nominal value and a coupon rate of 4%.
Thecompany payscorporate income taxat20%.
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?
