Question 1

The International Integrated Reporting Council (IIRC) was formed in August 2010 and brings together a

cross-section of representatives from a wide variety of business sectors.

The primary purpose of the IIRC's framework is to help enable an organsation to communicate how it:

Options :

A : minimises the environmental impact of its business processes.

B : creates value in the short, medium and long term.

C : contributes positively to the economic well being of the environment in which it operates.

D : ensures that the conflicting needs of different stakeholder groups are met in an optimal manner.

Answer: B

Question 2

Which THREE of the following statements are correct?

Options :

A : A portfolio can be diversified by increasing the number of securities in different industries held in the portfolio.

B : Systematic risk can be eliminated in a diversified portfolio.

C : The beta of a company-s shares reflects systematic risk.

D : A beta of 1 indicates that the investment is risk free.

E : The security market line (SML) shows the relationship between systematic risk and return.

Answer: A,C

Question 3

The Board of Directors of Company T is considering a rights issue to fund a new investment opportunity

which has a zero NPV.

The Board of Directors wishes to explain to shareholders what the theoretical impact on their wealth will be as

a result of different possible actions during the rights issue.

Which THREE of the following statements in respect of theoretical shareholder wealth are true?

Options :

A : If shareholders exercise their full rights there will be no impact on their wealth.

B : If the shareholders allow their rights to lapse (do nothing) there will be no impact on their wealth.

C : If shareholders sell their entire rights entitlement there will be no impact on their wealth.

D : If the shareholders only partially exercise their rights and allow the remainder to lapse there will be no impact on their wealth

E : If shareholders partially exercise their rights and sell the remaining rights entitlement there will be no impact on their wealth.

Answer: A,C

Question 4

Company P is a large unlisted food-processing company.

Its current profit before interest and taxation is $4 million, which it expects to be maintainable in the future.

It has a $10 million long-term loan on which it pays interest of 10%.

Corporate tax is paid at the rate of 20%.

The following information on P/E multiples is available:

Which of the following is the best indication of the equity value of Company P?

Options :

A : $80 million

B : $40 million

C : $48 million

D : $24 million

Answer: D

Question 5

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

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