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A company has:
* 10 million $1 ordinary shares in issue
* A current share price of$5.00 a share
* A WACC of 15%
The company holds $10 million in cash. No interest is earned on this cash.
It will invest this in a projectwith an expected NPV of $4 million.
In a semi-strong efficientstock market, which of the following is the most likely share price immediately after the announcement of the new investment?
A company's Board of Directors is assessing thelikely impact of financing new projectsbyusing either debt or equity finance.
The impact of using debt or equity finance on some key variables is uncertain.
WhichTHREEof the following statements are true?
A private company manufactures goods for export, the goods are priced in foreign currency B$.
The company is partly owned by members of the founding family and partly by a venture capitalist who is helping to grow the business rapidly in preparation for a planned listing in three years' time.
The company therefore has significant long term exposure to the B$.
This exposure is hedged up to 24 months into the future based on highly probable forecast future revenue streams.
The company does not apply hedge accounting and this has led tohigh volatility in reported earnings.
Which of the following best explains why external consultants have recently advised the company to apply hedge accounting?
An analyst has valued a company using the free cash flow valuation model.
The analyst used the following data in determining the value:
* Estimated free cashflow in 1 year's time = $100,000
* Estimated growth in free cashflow after the first year = 5% each year indefinitely
* Appropriatecost of equity = 10%
Theresult produced by the analyst was as follows:
Value of equity = $100,000 (1+0.05)/0.10 = $1,050,000
The analyst made a number of errors in determining the value.
By how much has the analyst undervalued the company?
Company Ais proposing a rights issueto finance a new investment. Its current debt to equity ratio is 10%.
Which TWO of the following statements are true?
