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1.CORRECT TEXT

A venture capitalist invests in a company by means of buying:

9 million shares for $2 a share and

8% bonds with a nominal value of $2 million, repayable at par in 3 years' time.

The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment.

The company has 10 million shares in issue.

What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?

Give your answer to the nearest $ million.

$ million.

Answer: 34, 35, 34000000, 35000000

2.CORRECT TEXT

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

3.Which THREE of the following are likely to be strategic reasons for a horizontal acquisition?

A. Reduction of risk by building a larger portfolio

B. Acquisition of an undervalued company

C. To achieve economies of scale

D. To secure key parts of the value chain

E. Reduction of competition

Answer: B,C,E

4.A company plans to raise $12 million to finance an expansion project using a rights issue.

Relevant data:

Shares will be offered at a 20% discount to the present market price of $15.00 per share.

There are currently 2 million shares in issue.

The project is forecast to yield a positive NPV of $6 million.

What is the yield-adjusted Theoretical Ex-Rights Price following the announcement of the rights issue?

A. $16.00

B. $14.00

C. $9.00

D. $11.00

Answer: A

5.Company T is a listed company in the retail sector.

Its current profit before interest and taxation is $5 million.

This level of profit is forecast to be maintainable in future.

Company T has a 10% corporate bond in issue with a nominal value of $10 million.

This currently trades at 90% of its nominal value.

Corporate tax is paid at 20%.

The following information is available:

Which of the following is a reasonable expectation of the equity value in the event of an attempted takeover?

A. $32.0 million

B. $41.6 million

C. $65.0 million

D. $50.2 million

Answer: B