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NEW QUESTION 32
Company A is subject to a takeover bid from Company B, both companies operate in the same industry and each of them demand a significant market share Company B h3S made an of an of $5 per share to the shareholders of Company A.
The directors of Company A do not believe the takeover would be in the best interests of the stakeholders and other stakeholders of Company A due to the following reruns
1. Company B has recently taken ever several ether companies resulting in them breaking up the company and se ling on the assets.
2 The directors of Company A believe the offer of $5 per snare undervalues tie company
The directors of Company A are therefore keen to prevent the bid from going ahead
Which THREE of the following defence strategies could be used by the directors of Company Air this situation?
- A. Give existing shareholders the right to buy bonds in the future.
- B. Appeal to their own shareholders that the company should not be broken up because i: has strong growth prospects.
- C. Offer the company to an alternative While Knight bidder.
- D. Refer the bid to the Competition Authorizes because of the risk of a large number of employee redundancies if Company B’s Did were to be successful
- E. Inform shareholders of the potential current value of the non-current assets including intangibles, to show that their true value is higher than the bid value.
Answer: B,C,D
NEW QUESTION 33
AA is considering changing its capital structure. The following information is currently relevant to AA:
The gearing rating raising the new debt finance will be 50%.
Which THREE of the following statement about the impact of AA’s change in capital structure are true under Modigliani and Miler’s capital structure theory with tax.
- A. The WACC increase above 7.6
- B. The WACC will decrease below 7.6%
- C. The cost of equity will increase above 10%
- D. The cost of debt remain unchanged at 4%
- E. The cost of equity will decrease below 10%
- F. The cost of debt will increase above 4%
Answer: A,B,D
NEW QUESTION 34
Using the CAPM, the expected return for a company is 11%. The market return is 8% and the risk free rate is
2%.
What does the beta factor used in this calculation indicate about the risk of the company?
- A. It is not possible to tell from CAPM.
- B. It has the same risk as the average market risk.
- C. It has lower risk than the average market risk.
- D. It has greater risk than the average market risk.
Answer: D
NEW QUESTION 35
A company s about to announce a new project that has a positive NPV.
If the market is semi-strong form efficient, which of the following statements is most Likely to be true?
The value of the company will.
- A. increase only on completion of the project.
- B. only change to incorporate historical information.
- C. Increase by the NPV of the project once the information has been announced
- D. already include the value of the project.
Answer: C
NEW QUESTION 36
A listed company follows a policy of paying a constant dividend. The following information is available:
* Issued share capital (nominal value $0.50) $60 million
* Current market capitalisation $480 million
The shareholders are requesting an increased dividend this year as earnings have been growing. However, the directors wish to retain as much cash as possible to fund new investments. They therefore plan to announce a 1-for-10 scrip dividend to replace the usual cash dividend.
Assuming no other influence on share price, what is the expected share price following the scrip dividend?
Give your answer to 2 decimal places.
$ ?
Answer:
Explanation:
3.64, 3.63, 3.65
NEW QUESTION 37
……
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