Question 1

A company has just received a hostile bid. Which of the following response strategies could be considered?

Options :

A : Revalue non-current assets

B : Poison pill strategy

C : Change the Articles of Association to amend voting rights

D : Approach a White Knight

Answer: D

Question 2

Company A is located in Country A, where the currency is the A$.

It is listed on the local stock market which was set up 10 years ago.

It plans a takeover of Company B, which is located in Country B where the currency is the B$, and where the

stock market has been operating for over 100 years.

Company A is considering how to finance the acquisition, and how the shareholders of Company B might

respond to a share exchange or cash (paid in B$).

Which of the following is likely to explain why the shareholders of Company B would prefer a share exchange

as opposed to a cash offer?

Options :

A : It would allow them to realise their investment and make a capital gain.

B : It would avoid them being exposed to foreign currency risk.

C : They would receive shares in a market that is likely to be more efficient.

D : It would enable them to benefit from the future performance of the combined entity.

Answer: D

Question 3

When valuing an unlisted company, a P/E ratio for a similar listed company may be used but adjustments to

the P/E ratio may be necessary.

Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use?

Options :

A : The relative lack of marketability of unlisted company shares.

B : A lower level of scrutiny and regulation for unlisted companies.

C : Unlisted companies being generally smaller and less established.

D : Control premium not being included within the proxy p/e ratio used.

E : The forecast earnings growth being relatively higher in the unlisted company.

F : A profit item within the unlisted company-s latest earnings which will not reoccur.

Answer: A,B,C

Question 4

TU has relatively few tangible assets and is dependent for profits and growth on the high-value individuals it employs. Which of the following statements best explains why the net asset valuator method’s considered unstable for TU?

Options :

A : TU does not account for its tangible assets

B : TU does not account for its intangible assets.

C : TU accounts for its intangible assets at net realisable value.

D : TU accounts for its intangible assets at historical value.

Answer: B

Question 5

An analyst has valued a company using the free cash flow valuation model.

The analyst used the following data in determining the value:

• Estimated free cashflow in 1 year's time = $100,000

• Estimated growth in free cashflow after the first year = 5?ch year indefinitely

• Appropriate cost of equity = 10%

The result produced by the analyst was as follows:

Value of equity = $100,000 (1+0.05)/0.10 = $1,050,000

The analyst made a number of errors in determining the value.

By how much has the analyst undervalued the company?

Options :

A : $950,000

B : $2,000,000

C : $2,100,000

D : $1,050,000

Answer: A

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