Question No 12:
A company's gearing (measured as debt/(debt + equity)) is currently 60% and it is investigating whether an optimal gearing structure exists within the industry.
It has analysed the capital structure of similar companies in the industry and it would appear that there is evidence supporting the traditional theory of capital structure.
Companies with the lowest WACC in the industry have gearing of around 45% to 50%.
Which of the following actions would result in the company achieving a more optimal capital structure?
A. Undertaking a rights issue of equity to repay some of its debt.
B. Refinancing to replace some of its short term debt with long term debt.
C. Increasing the level of dividend to return more cash to shareholders.
D. Using retained cash to undertake a buyback of some of its equity.
Answer: A
Thursday, 21 April 2016
Thursday, 7 April 2016
Cima F3 Exam Question No 11
Question No 11:
A listed company is planning to raise $21.6 million to finance a new project with a positive net present value of $5 million. The finance is to be raised via a rights issue at a 10% discount to the current share price. There are currently 100 million shares in issue, trading at $2.00 each.
Taking the new project into account, what would the theoretical ex-rights price be?
Give your answer to two decimal places.
$ ?
Answer: 2.02, 2.03
A listed company is planning to raise $21.6 million to finance a new project with a positive net present value of $5 million. The finance is to be raised via a rights issue at a 10% discount to the current share price. There are currently 100 million shares in issue, trading at $2.00 each.
Taking the new project into account, what would the theoretical ex-rights price be?
Give your answer to two decimal places.
$ ?
Answer: 2.02, 2.03
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