CIMA F3 Exam With Confidence Using Practice Dumps

Company Z has identified four potential acquisition targets: companies A, B, C and D.

Company Z has a current equity market value of $590 million.

The price it would have to pay for the equity of each company is as follows:

Only one of the target companies can be acquired and the consideration will be paid in cash.

The following estimations of the new combined value of Company Z have been prepared for each acquisition before deduction of the cash consideration:

Ignoring any premium paid on acquisition, which acquisition should the directors pursue?

The Board of Directors of a small listed company engaged in exploration are currently considering the future dividend policy of the company. Exploration is considered a high-risk business and consequently the company has a low level of debt finance.

Forecasts indicate a period of profit fluctuation in the next few years as the company is planning to embark on a major capital investment project. Debt finance is unlikely to be available due to the project's high business risk.

Which THREE of the following are practical considerations when determining the company's dividend/retention policy? 

A company's Board of Directors wishes to determine a range of values for its equity.

The following information is available:

Estimated net asset values (total asset less total liabilities including borrowings):

   • Net book value = $20 million

   • Net realisable value = $25 million

   • Free cash flows to equity = $3.5 million each year indefinitely, post-tax.

   • Cost of equity = 10%

   • Weighted Average Cost of Capital = 7%

Advise the Board on reasonable minimum and maximum values for the equity.