CIMA F3 Exam With Confidence Using Practice Dumps

A company has stable earnings of S2 million and its shares are currently trading on a price earnings multiple {PIE) of 10 times. It has10 million shares in issue.

The company is raising S4 million debt finance to fund an expansion of its existing business which is forecast to increase annual earnings straight away by 25% and then remain at that level for the foreseeable future. The corporation tax rate is 20%. It is expected that the P/E will reduce to 8 times over the next year.

What is the most likely change in shareholder wealth resulting from this plan?

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 listed company plans to raise $350 million to finance a major expansion programme.

The cash flow projections for the programme are subject to considerable variability.

Brief details of the programme have been public knowledge for a few weeks.

The directors are considering two financing options, either a rights issue at a 20% discount to current share price or a long term bond.

The following data is relevant:

The company's share price has fallen by 5% over the past 3 months compared with a fall in the market of 3% over the same period.

The directors favour the bond option.

However, the Chief Accountant has provided arguments for a rights issue.

Which TWO of the following arguments in favour of a right issue are correct?