CIMA F3 Exam With Confidence Using Practice Dumps

Company A is planning to acquire Company B. Both companies are listed and are of similar size based on market capitalisation No approach has yet been made to Company B's shareholders as the directors of Company A are undecided about the most suitable method of financing the offer Two methods are under consideration a share exchange or a cash offer financed by debt.

Company A currently has a gearing ratio (debt to debt plus equity) of 30% based on market values. The average gearing ratio (debt to debt plus equity) for the industry is 50% Although no formal offer has been made there have been market rumours of the proposed bid. which is seen as favorable to Company A. As a consequence. Company As share price has risen over the past few weeks while Company B's share price has fallen.

Which THREE of the following statements are most likely to be correct?

A company is wholly equity funded. It has the following relevant data:

   • Dividend just paid $4 million

   • Dividend growth rate is constant at 5%

   • The risk free rate is 4%

   • The market premium is 7%

   • The company's equity beta factor is 1.2

Calculate the value of the company using the Dividend Growth Model.

Give your answer in $ million to 2 decimal places.

$ ?  million

A project requires an initial outlay of $2 million which can be financed with either a bank loan or finance lease.

The company will be responsible for annual maintenance under either option.

The tax regime is:

   • Tax depreciation allowances can be claimed on purchased assets.

   • If leased using a finance lease, tax relief can be claimed on the interest element of the lease payments and also on the accounting depreciation charge.

The trainee management accountant has begun evaluating the lease versus buy decision and has produced the following data.  He is not confident that all this information is relevant to this decision.

Using only the relevant data, which of the following is correct?