CIMA F3 Value Pack (Frequently Bought Together)

A young, capital intensive company has a large amount of tangible assets.
Intangibles, including brand name, are considered to be of negligible value at this time Relevant data:
* The company operates a residual dividend policy.
* The industry in which the company operates is suffering from a large amount of uncertainty at present.
Forecasting the future earnings or cashflows of the company is therefore extremely difficult
* There are very few quoted companies in the industry that are similar in size or in precisely the same business sectors.
Which method of valuation would be most suitable for this company?

• A. Dividend valuation model with a proxy company's cost of equity.
• B. Earnings based using a proxy company's P/E ratio.
• C. Discounted cash flow with a proxy company's cost of capital.
• D. Net asset based using replacement cost.

Company AAB is located in country A whose currency is the AS It has a subsidiary, BBA, located m country B that has the BS as its currency AAB has asked BBA to pay BS40 million surplus funds to AAB to assist with a planned new capital investment in country A The exchange rate today is AS1 = BS3 Tax regimes
* Company BBA pays withholding tax of 25% on all cash remitted to the parent company
* Company AAB pays tax of 10% on at cash received from its subsidiary
How much will company AAB have available for investment after receiving the surplus funds from BBA?

• A. A$ 12 million
• B. A$ 81 million
• C. A$ 27 million
• D. A$ 9 million

A major energy company, GDE, generates and distributes electricity in country A. The government of country A is concerned about rising inflation and has imposed price controls on GDE, limiting the price it can charge per unit of electricity sold to both domestic and commercial customers. It is likely that price controls will continue for the foreseeable future.
The introduction of price controls is likely to reduce the profit for the current year from $3 billion to $1 billion.
The company has:
* Distributable reserves of $2 billion.
* Surplus cash at the start of the year of $1 billion.
* Plans to pay a total dividend of $1.5 billion in respect of the current year, representing a small annual increase as in previous years. However, no dividends have yet been announced.
Which THREE of the following responses would be MOST appropriate for GDE following the imposition of price controls?

• A. Actively look for a private equity investor to introduce new and innovative business and financial strategies to the business.
• B. Raise funds by means of a rights issue in order to maintain historical dividend levels.
• C. Carry out a wide-ranging review of costs and staffing levels to identify possible cost savings and redundancies.
• D. Actively investigate potential new ways of generating revenue by the sale of related goods and services that are outside the scope of the price controls.
• E. Announce a reduction in the annual dividend to a more sustainable level given the new price controls regime.

A venture capitalist has made an equity investment in a private company and is evaluating possible methods by which it can exit the investment over the next 3 years. The private company shareholders comprise the four original founders and the venture capitalist.
Advise the venture capitalist which THREE of the following methods will enable it to exit its equity investment?

• A. The private company conducts a stock split of its share capital.
• B. The private company undertakes a 1 for 4 rights issue.
• C. The private company buys back the equity shares.
• D. The private company obtains a stock market listing.
• E. Trade sale of shares to an external 3rd party.

DFG is a successful company and its shares are listed on a recognised stock exchange. The company's gearing ratio is currently in line with the industry average and the directors of DFG do not want to increase the company's financial risk. The company does not carry a large cash balance and its shareholders are not expected to be willing to support a rights issue at this time LMB is a small services company owned and managed by a small board of directors who are going to retire within the next year DFG wishes to purchase LMB and has approached LMB's owners, who are broadly open to the proposal, to discuss the bid and the consideration to be offered by DFG. LMB's owners explain to DFG that they are also keen to defer any tax liabilities they would be subject to on receipt of the consideration.
Based on the information provided, which of the following types of consideration would be most suitable to finance the acquisition?

• A. DFG shares for a percentage of the current value of LMB plus a three year earn-out arrangement
• B. Cash for the current value of LMB
• C. Loan stock in DFG for the current value of LMB
• D. DFG shares for the current value of LMB