ACCA/CAT - F9 - 查题吧

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问答题

Dinla Co has the following capital structure.<br>The ordinary shares of Dinla Co are currently trading at $4·26 per share on an ex dividend basis and have a nominal value of $0·25 per share. Ordinary dividends are expected to grow in the future by 4% per year and a dividend of $0·25 per share has just been paid.<br>The 5% preference shares have an ex dividend market value of $0·56 per share and a nominal value of $1·00 per share. These shares are irredeemable.<br>The 6% loan notes of Dinla Co are currently trading at $95·45 per loan note on an ex interest basis and will be redeemed at their nominal value of $100 per loan note in five years’ time.<br>The bank loan has a fixed interest rate of 7% per year.<br>Dinla Co pays corporation tax at a rate of 25%.<br>Required:<br>(a) Calculate the after-tax weighted average cost of capital of Dinla Co on a market value basis. (8 marks)<br>(b) Discuss the connection between the relative costs of sources of finance and the creditor hierarchy. (3 marks)<br>(c) Explain the differences between Islamic finance and other conventional finance. (4 marks)

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Required:<br>(a) Justifying any assumptions which you make, calculate the current market value of the loan notes of Darlga Co, using future share price increases of:<br>(i) 4% per year;<br>(ii) 6% per year. (6 marks)<br>(b) Discuss the limitations of the dividend growth model as a way of valuing the ordinary shares of a company. (4 marks)

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The 7% loan notes were issued domestically while the 10% loan notes were issued in a foreign country.<br>The interest rate on the long-term bank loan is reset to bank base rate plus a fixed percentage at the end of each year. The annual payment on the bank loan consists of interest on the year-end balance plus a capital repayment.<br>Relevant exchange rates are as follows:<br>Plam Co can place pesos on deposit at 3% per year and borrow dollars at 10% per year. The company has no cash available for hedging purposes.<br>Required:<br>(a) Evaluate the risk faced by Plam Co on its peso-denominated interest payment in six months’ time and advise how this risk might be hedged. (5 marks)<br>(b) Identify and discuss the different kinds of interest rate risk faced by Plam Co. (5 marks)

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Section A暂缺<br>Section B – ALL FIVE questions are compulsory and MUST be attempted<br>Crago Co is concerned that it may be overtrading. Financial information relating to the company is as follows.<br>Required:<br>Evaluate whether Crago can be considered to be overtrading and discuss how overtrading can be overcome.<br>Note: Up to 4 marks are available for calculations.

问答题

The new machine will incur fixed annual maintenance costs of $145,000 per year. Variable costs are expected to be $3·00 per unit and selling price is expected to be $5·65 per unit. These costs and selling price estimates are in current price terms and do not take account of general inflation, which is forecast to be 4·7% per year.<br>It is expected that the new machine will need replacing in four years’ time due to advances in technology. The resale value of the new machine is expected to be $200,000 at that time, in future value terms.<br>The purchase price of the new machine is payable at the start of the first year of the four-year life of the machine. Working capital investment of $150,000 will already exist at the start of the four-year period, due to the operation of the existing machine. This investment in working capital is expected to increase in nominal terms in line with the general rate of inflation.<br>Argnil Co pays corporation tax one year in arrears at an annual rate of 27% and can claim 25% reducing balance tax-allowable depreciation on the purchase price of the new machine. The company has a real after-tax weighted average cost of capital of 6% and a nominal after-tax weighted average cost of capital of 11%.<br>Required:<br>(a) Using a nominal terms net present value approach, evaluate whether purchasing the new machine is financially acceptable. (10 marks)<br>(b) Discuss the reasons why investment finance may be limited, even when a company has attractive investment opportunities available to it. (5 marks)

问答题

ZXC Co currently has income of $30 million per year, of which 80% is from credit sales, and a net profit margin of 10%. Due to fierce competition, ZXC Co has lost market share and is looking for ways to win back former customers and to keep the loyalty of existing customers. The sales director has pointed out that a major competitor of ZXC Co currently offers an early settlement discount of 0·5% for settlement within 30 days, while ZXC Co itself does not offer an early settlement discount. He suggests that if ZXC Co could match this early settlement discount, annual income from credit sales would increase by 20%.<br>Credit customers of ZXC Co take an average of 51 days to settle invoices. Approximately 0·5% of the company’s credit sales have historically become bad debts each year and written off as irrecoverable. The finance director has been advised that offering an early settlement discount of 0·5% for payment within 30 days would increase administration costs by $35,000 per year, while 75% of credit customers would be likely to take the discount. The credit controller believes that bad debts would fall to 0·375% of credit sales if the early settlement discount were introduced.<br>ZXC Co has an average short-term cost of finance of 4% per year. Assume that there are 360 days in each year.<br>Required:<br>(a) Evaluate whether ZXC Co should introduce the early settlement discount. (6 marks)<br>(b) Discuss TWO ways in which a company could reduce the risk associated with foreign accounts receivable. (4 marks)

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GXJ Co, whose home currency is the dollar, wishes to borrow €12 million for a period of six months in three months’ time. The lending bank will fix the interest rate for the loan period at its prevailing lending interest rate when the loan is taken out. The finance director of GXJ Co believes this lending interest rate could be a minimum of 3·5% per year or a maximum of 5·5% per year. The uncertainty regarding the future interest rate is caused by the volatile state of the economy and impending elections which could lead to a change in political leadership and direction. Interest on the euro loan would be payable at the end of the loan period.<br>The finance director of GXJ Co would like to hedge the interest rate risk arising from the future loan and the company’s bank has offered a 3–9, 4·5%–3·5% forward rate agreement.<br>The finance director is also concerned about the foreign currency risk associated with the euro interest payment which would be due in nine months’ time.<br>The following exchange rates are available:<br>Required:<br>(a) Evaluate the proposed forward rate agreement as a way of managing the interest rate risk anticipated by GXJ Co. (3 marks)<br>(b) Analyse the foreign currency risk associated with the future interest payment of GXJ Co and briefly discuss ways that this risk might be hedged. (4 marks)<br>(c) Explain the nature of four-way equivalence in the relationship between spot exchange rates, forward exchange rates and future (expected) spot rates. (3 marks)

问答题

Section A暂缺<br>Section B – ALL FIVE questions are compulsory and MUST be attempted<br>Gemlo Co is a company listed on a large stock market. Extracts from its current statement of financial position are as follows:<br>Gemlo Co is planning an expansion of existing business operations costing $10 million in the near future and is assessing its current financial position as part of preparing a business case in support of seeking new finance. The business expansion is expected to increase the profit before interest and tax of Gemlo Co by 20% in the first year.<br>The planned business expansion by Gemlo Co has already been announced to the stock market. Information on the expected increase in profit before interest and tax has not yet been announced and the company has not decided on how the expansion is to be financed.<br>The ordinary shares of the company are currently trading at $3·75 per share on an ex dividend basis. The irredeemable loan notes have a cost of debt of 7%. The 7% loan notes have a cost of debt of 6% and will be redeemed at a 5% premium to nominal value after seven years. The interest cover of Gemlo Co is 6 times.<br>Companies operating in the same business sector as Gemlo Co have an average debt/equity ratio of 40% on a market value basis and an average interest cover of 9 times.<br>Required:<br>(a) Calculate the debt/equity ratio of Gemlo Co based on market values and comment on your findings. (4 marks)<br>(b) Gemlo Co agrees with a bank that its business expansion will be financed by a new issue of 8% loan notes. The company then announces to the stock market both this financing decision and the expected increase in profit before interest and tax arising from the business expansion. Required:<br>Assuming the stock market is semi-strong form. efficient, analyse and discuss the effect of the financing and profitability announcement on the financial risk and share price of Gemlo Co. Note: Up to 2 marks for relevant calculations. (6 marks)

问答题

Tinep Co is planning to raise funds for an expansion of existing business activities and in preparation for this the company has decided to calculate its weighted average cost of capital. Tinep Co has the following capital structure:<br>The ordinary shares of Tinep Co have a nominal value of 50 cents per share and are currently trading on the stock market on an ex dividend basis at $5·85 per share. Tinep Co has an equity beta of 1·15.<br>The loan notes have a nominal value of $100 and are currently trading on the stock market on an ex interest basis at $103·50 per loan note. The interest on the loan notes is 6% per year before tax and they will be redeemed in six years’ time at a 6% premium to their nominal value.<br>The risk-free rate of return is 4% per year and the equity risk premium is 6% per year. Tinep Co pays corporation tax at an annual rate of 25% per year.<br>Required:<br>(a) Calculate the market value weighted average cost of capital and the book value weighted average cost of capital of Tinep Co, and comment briefly on any difference between the two values. (9 marks)<br>(b) Discuss the factors to be considered by Tinep Co in choosing to raise funds via a rights issue. (6 marks)

问答题

The junior employee also provided the following information:<br>1. Relevant fixed costs are forecast to be $150,000 per year.<br>2. Sales and production volumes are the same and no finished goods inventory is held.<br>3. The corporation tax rate is 22% per year and tax liabilities are payable one year in arrears.<br>4. Uftin Co can claim tax allowable depreciation of 25% per year on a reducing balance basis on the initial investment.<br>5. A balancing charge or allowance can be claimed at the end of the fourth year.<br>6. It is expected that selling price inflation will be 4·2% per year, variable cost inflation will be 5% per year and fixed cost inflation will be 3% per year.<br>7. The investment has no scrap value.<br>8. The investment will be partly financed by a $1,500,000 loan at 10% per year.<br>9. Uftin Co has a weighted average cost of capital of 12% per year.<br>Required:<br>(a) Prepare a revised draft evaluation of the investment proposal and comment on its financial acceptability. (11 marks)<br>(b) Explain any TWO revisions you have made to the draft evaluation in part (a) above. (4 marks)

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