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NEW QUESTION 26
Which of the following is NOT an advantage of a share repurchase?

  • A. To reduce the cost of capital of a company by increasing the gearing level.
  • B. To enable the company to retain cash in the business for reinvestment
  • C. To return surplus cash to shareholders by avoiding a one-off dividend
  • D. To allow investors to sell shares if no active market currently exists

Answer: B

 

NEW QUESTION 27
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:
F3-fce48d84602861921147cc2b6d8eeab8.jpg
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?

  • A. The issue of bonds might limit the availability of debt finance in the future.
  • B. The rights issue will lead to less pressure on the operating cash flows of the programme.
  • C. The WACC will decrease assuming Modigliani and Miller's Theory of Capital Structure without taxes applies.
  • D. The administrative costs of a rights issue will be lower.
  • E. The recent fall in the share price makes a rights issue more attractive to the company.

Answer: A,B

 

NEW QUESTION 28
Company C invests heavily in Research and Development an need to raise $45 million to finance future projects. It has decided to use equity finance raised by a tender offer, The following tender offers have been received from potential investors:
F3-b22c977f62eef76b374742276a175fba.jpg
Company C wishes to select an offer price that will project shareholders from a significant dilution of control but still raise the required amount of finance.
What offer price should Company C's select?

  • A. $4.50
  • B. $4.00
  • C. $4.25
  • D. $4.75

Answer: A

 

NEW QUESTION 29
......

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