A listed company follows a policy of paying a constant dividend. The following information
is available:
• Issued share capital (nominal value $0.50) $60 million
• Current market capitalisation $480 million
The shareholders are requesting an increased dividend this year as earnings have been
growing. However, the directors wish to retain as much cash as possible to fund new
investments. They therefore plan to announce a 1-for-10 scrip dividend to replace the usual
cash dividend.
Assuming no other influence on share price, what is the expected share price following
the scrip dividend?
Give your answer to 2 decimal places.
$ ? 

A company's Board of Directors wishes to determine a range of values for its equity.
The following information is available:
Estimated net asset values (total asset less total liabilities including borrowings):
• Net book value = $20 million
• Net realisable value = $25 million
• Free cash flows to equity = $3.5 million each year indefinitely, post-tax.
• Cost of equity = 10%
• Weighted Average Cost of Capital = 7%
Advise the Board on reasonable minimum and maximum values for the equity.

A company is currently all-equity financed.
The directors are planning to raise long term debt to finance a new project.
The debt:equity ratio after the bond issue would be 40:60 based on estimated market
values.
According to Modigliani and Miller's Theory of Capital Structure without tax, the company's
cost of equity would:

A company generates operating profit of $17.2 million, and incurs finance costs of $5.7
million.
It plans to increase interest cover to a multiple of 5-to-1 by raising funds from shareholders
to repay some existing debt. The pre-tax cost of debt is fixed at 5%, and the refinancing
will not affect this.
Assuming no change in operating profit, what amount must be raised from shareholders?
Give your answer in $ millions to the nearest one decimal place.
$ ?

 A company's Board of Directors is assessing the likely impact of financing future new
projects using either equity or debt.
The directors are uncertain of the effects on key variables. 

 Which THREE of the following statements are true? 

A project requires an initial outlay of $2 million which can be financed with either a bank
loan or finance lease.
The company will be responsible for annual maintenance under either option.
The tax regime is:
• Tax depreciation allowances can be claimed on purchased assets.
• If leased using a finance lease, tax relief can be claimed on the interest element of the
lease payments and also on the accounting depreciation charge.
The trainee management accountant has begun evaluating the lease versus buy decision
and has produced the following data. He is not confident that all this information is relevant
to this decision.

Using only the relevant data, which of the following is correct?

 A consultancy company is dependent for profits and growth on the high value individuals it
employs.
The company has relatively few tangible assets.
Select the most appropriate reason for the net asset valuation method being considered
unsuitable for such a company.

 A company has identified potential profitable investments that would require a total of S50
million capital expenditure over the next two years The following information is relevant.
• The company has 100 million shares in issue and has a market capitalisation of S500
million
• It has a target debt to equity ratio of 40% based on market values This ratio is currently
30%
• Earnings for the current year are expected to be S1 00 million
• Its last dividend payment was $1 per share One of the company's objectives is to
increase dividends by at least 10% each year
• The company has no cash reserves
Which of the following is the most suitable method of financing to meet the company's
requirements?