Question 1

Company W has received an unwelcome takeover bid from Company B. The offer is a share exchange of 3

shares in Company B for 5 shares in Company W or a cash alternative of $5.70 for each Company W share.

Company B is approximately twice the size of Company W based on market capitalisation. Although the two

companies have some common business interested the main aim of the bid is diversification for Company B.

Company W has substantial cash balances which the directors were planning to use to fund an acquisition.

These plans have not been announced to the market.

The following share price information is relevant.

Which of the following would be the most appropriate action by Company W's directors following receipt of

this hostile bid?

Options :

A :

Change the Articles of Association to increase the percentage of shareholder votes required to approve a

takeover.

B : Refer the bid to the country-s competition authorities.

C : Write to shareholders explaining fully why the company-s share price is under valued.

D : Pay a one-off special dividend.

Answer: C

Question 2

An unlisted company operates in a niche market, exploring the west coast of Africa for new oiI reservoirs.The oil exploration program has been successful in recent years and t now has a substantial amount of oilreserves with a high level of certainty of being recoverable Under financial reporting regulations, oil still in theground is not recognised as an asset unit is extracted.The expense of the exploration program has used up all the company’s available cash resources.The company has denied to list or a stock market and raise finds through an initial public offering to financeits drilling program.Which of the following valuation methods in the appropriate to use in calculating an initial listing price for thiscompany?

Options :

A : Market capitalisation.

B : Framings valuation using the ratio of a multinational oil exploration company

C : Net asset valuation based on book values.

D : Discounted cash flow valuation

Answer: D

Question 3

A company's current profit before interest and taxation is $1.1 million and it is expected to remain constant forthe foreseeable future.The company has 4 million shares in issue on which the earnings yield is currently 10%. It also has a $2million bond in issue with a fixed interest rate of 5%.The corporate income tax rate is 20% and is expected to remain unchanged.Which of the following is the best estimate of the current share price?

Options :

A : $2.75

B : $2.50

C : $2.00

D : $1.10

Answer: C

Question 4

Which THREE of the following are considered in detail in IFRS 7 Financial Instruments: Disclosures?

Options :

A : Credit risk

B : Business risk

C : Market risk

D : Enterprise risk

E : Liquidity risk

Answer: A,C

Question 5

Company Z has just completed the all-cash acquisition of Company A.

Both companies operate in the advertising industry.

The market considered the acquisition a positive strategic move by Company Z.

Which THREE of the following will the shareholders of Company Z expect the company's directors to

prioritise following the acquisition?

Options :

A : The realisation of anticipated post-acquisition synergies.

B : The development of a dividend policy to meet the expectations of the target company shareholders.

C : The integration and retention of key employees.

D : The regulatory approval required to complete the acquisition.

E : The retention of key customers of the acquired company.

Answer: A,C

Free CIMAPRA19-F03-1-ENG Mock Exam – Practice Online Confidently

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