F3 Exam Dumps - Financial Strategy

ï‚· TERP = $4.80 (given).

 Issue price = $4.00 → value of one right per new share = 4.80 − 4.00 = $0.80.

ï‚· The company offers $1.00 per right, which is more than the theoretical value.

So shareholders who don’t want to invest more cash are better off selling the rights back to the company for $1 rather than exercising them or selling on the market.

That means fewer shareholders will take up the rights, so the company is likely to raise less cash → option D.

Quick check of each offer (per Company Z share):

Current price of Z: $5

Required 15% premium:

5×1.15=5.755 \times 1.15 = 5.755×1.15=5.75

Cash offer = $5.50

Premium = (5.50 − 5) / 5 = 10% → below 15%

Share-for-share: 3 A shares for every 2 Z shares

For 1 Z share → 1.5 A shares

A’s price = $4 → value = 1.5 × 4 = $6.00

Premium = (6 − 5) / 5 = 20% → above 15%

Bond offer: 1 bond for every 20 Z shares

Coupon = 10.5% of 100 = 10.5

Required yield = 10% → bond value ≈ 10.5 / 0.10 = $105

Value per Z share = 105 / 20 = $5.25

Premium = (5.25 − 5) / 5 = 5% → below 15%

So only the share exchange meets her required premium → C is correct.

Current year:

Revenue = $50m

PBIT = $10m → margin = 10/50 = 20%

Tax = 20%

Earnings = 10 × (1 − 0.20) = $8m

Next year:

Revenue still $50m

40% of revenue = $20m → margin falls to 18%

PBIT on this part=20×18%=3.6\text{PBIT on this part} = 20 \times 18\% = 3.6PBIT on this part=20×18%=3.6

60% of revenue = $30m → margin stays 20%

PBIT on this part=30×20%=6.0\text{PBIT on this part} = 30 \times 20\% = 6.0PBIT on this part=30×20%=6.0

Total PBIT next year:

3.6+6.0=9.6 million3.6 + 6.0 = 9.6\ \text{million}3.6+6.0=9.6 million

Earnings after tax next year:

9.6×(1−0.20)=9.6×0.8=7.68 million9.6 \times (1 - 0.20) = 9.6 \times 0.8 = 7.68\ \text{million}9.6×(1−0.20)=9.6×0.8=7.68 million

Percentage reduction in earnings:

8.00−7.688.00=0.328=0.04=4%\frac{8.00 - 7.68}{8.00} = \frac{0.32}{8} = 0.04 = 4\%8.008.00−7.68​=80.32​=0.04=4%

Correct option:

C. Reduction of 4.0%\boxed{\text{C. Reduction of 4.0\%}}C. Reduction of 4.0%​

(A) describes a collar, not a pure cap. With a collar you sell a floor and buy a cap; that reduces the premium cost. (B) is wrong because with a collar you don’t benefit from rates falling below the floor. (D) is not necessarily true – options can be traded via markets or other counterparties, not just the company’s bank.