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Thetable below shows theforecast for a company's next financial year:
The forecast incorporates the following assumptions:
* 25% of operating costs are variable
* Debt finance comprises a $400 million fixed rate loan at 5%
* Corporateincometax is paid at 25%
The company plans to do the following next year from the forecast earnings on the assumption that earnings will be equivalent to free cash flow:
* Pay a total dividend of $20 million
* Invest $40 million in new projects
What is themaximum % reduction inoperatingactivitythat could occurnext yearbefore the company's dividend and investment plans are affected?
Give your answer to the nearest 0.1%.
Acompany'sgearingis well below its optimal level and therefore it is considering implementing a share re-purchase programme.
This programme will be funded from the proceeds of aplannednew long-term bond issue.
Its financial projectionsshow no change to next year'sexpectedearnings.
As a result, the companyplans to pay the same total dividend in future years.
If the sharere-purchase is implemented, whichTHREEof the following measures are most likely to decrease?
The Board of Directors of Company T is considering a rights issue to fund a new investment opportunity which has a zero NPV.
The Board of Directors wishes to explain to shareholders what the theoretical impact on their wealth will be as a result of different possible actions during the rights issue.
Which THREE of the following statements in respect of theoreticalshareholder wealth are true?
A company is concerned that a high proportion of its debt portfolio consists of variable rate finance with an interest rate of LIBOR ' 1 .0%.
It is considering using an interest rate swap to reduce interest rate risk out is concerned about additional finance cost this might create.
A bank has quoted swap rates of 3% 3.5% against LIBOR.
A bank has quoted swap rates of 3% 3.5% against LIBOR.
Is an interest rate swap likely to be beneficial to the company at current LIBOR rates?
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:
