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Legit F3 Exam Download

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Total 435 questions

Financial Strategy Questions and Answers

Question 17

Select whether the following statements are true or false with regard to Modigliani and Miller's dividend policy theory.

Options:

Question 18

A profitable company wishes to dispose of a loss-making division that generated negative free cashflow in the last financial year.

The division requires significant new investment to return it to profitability.

 

Which of the following valuation approaches is likely to be the most useful to the company when negotiating the sales price?

Options:

A.

Dividend growth model

B.

Asset basis

C.

Discounted forecast free cashflow

D.

P/E ratio applied to forecast earnings next year

Question 19

A company has forecast the following results for the next financial year:

  

The following is also relevant:

   • Profit after tax for the year can be assumed to be equivalent to free cash flow for the year.

   • Debt finance comprises a $10 million floating rate loan which currently carries an interest rate of 5%.

   • $400,000 investment in non-current assets is required to achieve required growth, all of which is to financed from next year's free cash flow.

   • The company plans to pay a dividend of $150,000 next year, financed from next year's free cash flow.

The company is concerned that interest rates could rise next year to 6% which could then affect their investment plans.

 

If interest rates were to rise to 6% and the company wishes to maintain its dividend amount, the planned investment expenditure will decrease by:

Options:

A.

$25,000

B.

$75,000

C.

$50,000

D.

$100,000

Question 20

Which of the following statements about companies seeking a stock market listing is correct?

Options:

A.

A listing may make it harder for a company to raise money from its existing lenders.

B.

The enhanced reputation of the company can improve its credit rating reducing the risk of non-payment to suppliers and lenders.

C.

When a company seeks a listing this may unsettle its staff, potentially resulting in a loss of valued employees.

D.

A listing will require the owners to either sell a majority of their shares, or, if they retain their shares, to step down from the board.

Page: 5 / 33
Total 435 questions