F3 Exam Dumps - Financial Strategy

An unlisted software development company has recently reported disappointing results. This was partly due to weak economic conditions but also because of its poor competitive position. The company has a number of exciting development opportunities which would enable it to achieve significant future growth. The company's growth potential has been hindered by its inability to secure sufficient new finance.

To enable the company raise new finance the Directors are considering working forwards an IPO in 10 years and accepting finance from a venture capitalist in order support in the intervening period.

The directors are keen to retain a controlling stake in the company and full representation on the board. They therefore require venture capitalists to provide funds as a mix of debt and equity and not soley equity finance.

Which THREE of the following are most likely to disrupt the directors' plans to use venture capital finance?

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?

An unlisted company wishes to obtain an estimated value for its shares in anticipation of a private sale of a large parcel of shares.

 

Relevant data for the unlisted company:

   • It has a residual dividend policy. 

   • It has earnings that are highly sensitive to underlying economic conditions.

   • It is a small business in a large industry where there are listed companies but there are none with a similar capital structure. 

 

The company intends to base valuations on the cost of equity of a proxy company after adjusting for any differences in capital structure where appropriate.

 

Which of the following methods is likely to give the most accurate equity value for this unlisted company?

Company W is a manufacturing company with three divisions, all of which are making profits:

• Division A which manufactures cars

• Division B which manufactures trucks

• Division C which manufactures agricultural machinery

Company W is facing severe competitive pressure in all of its markets, and is currently operating with a high level of gearing Company W's latest forecasts suggest that it needs to raise cash to avoid breaching loan covenants on its existing debt finance in 6 months' time

In a recent strategy review. Divisions A and B were identified as being the core divisions of Company W

The management of Division C is known to be interested in the possibility of a management buy-out. Company Z is known to be interested in making a takeover bid for Company W's truck manufacturing division

A rival to Company W has recently successfully demerged its business, this was well received by the Financial markets

Which of the following exit strategies will be most suitable for company W?

A company has in a 5% corporate bond in issue on which there are two loan covenants.

   • Interest cover must not fall below 3 times

   • Retained earnings for the year must not fall below $3.5 million

The Company has 200 million shares in issue.

The most recent dividend per share was $0.04.

The Company intends increasing dividends by 10% next year.

 

Financial projections for next year are as follows:

 

Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?

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?

Company R is a well-established, unlisted, road freight company.

In recent years R has come under pressure to improve its customer service and has had some cusses in doing this However, the cost of improved service levels has resulted In it marketing small losses in its latest financial year. This is the forest time R has not been profitable.

R uses a’ residual divided policy ad has paid dividends twice in the last 10 years.

Which of the following methods would be most appropriate for valuating R?

Which THREE of the following would be of most interest to lenders deciding whether to provide long-term debt to a company?