The equity beta of Fence Co is 0·9 and the company...

第1题

Tinep Co is planning to raise funds for an expansion of existing business activities and i

n preparation for this the company has decided to calculate its weighted average cost of capital. Tinep Co has the following capital structure:

Tinep Co is planning to raise funds for an expansi

The ordinary shares of Tinep Co have a nominal value of 50 cents per share and are currently trading on the stock market on an ex dividend basis at $5·85 per share. Tinep Co has an equity beta of 1·15.

The loan notes have a nominal value of $100 and are currently trading on the stock market on an ex interest basis at $103·50 per loan note. The interest on the loan notes is 6% per year before tax and they will be redeemed in six years’ time at a 6% premium to their nominal value.

The risk-free rate of return is 4% per year and the equity risk premium is 6% per year. Tinep Co pays corporation tax at an annual rate of 25% per year.

Required:

(a) Calculate the market value weighted average cost of capital and the book value weighted average cost of capital of Tinep Co, and comment briefly on any difference between the two values. (9 marks)

(b) Discuss the factors to be considered by Tinep Co in choosing to raise funds via a rights issue. (6 marks)

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第2题

The statement of financial position of BKB Co provides the following information:BKB Co ha

The statement of financial position of BKB Co provides the following information:

The statement of financial position of BKB Co prov

BKB Co has an equity beta of 1·2 and the ex-dividend market value of the company’s equity is $125 million. The ex-interest market value of the convertible bonds is $21 million and the ex-dividend market value of the preference shares is $6·25 million.

The convertible bonds of BKB Co have a conversion ratio of 19 ordinary shares per bond. The conversion date and redemption date are both on the same date in five years’ time. The current ordinary share price of BKB Co is expected to increase by 4% per year for the foreseeable future.

The overdraft has a variable interest rate which is currently 6% per year and BKB Co expects this to increase in the near future. The overdraft has not changed in size over the last financial year, although one year ago the overdraft interest rate was 4% per year. The company’s bank will not allow the overdraft to increase from its current level.

The equity risk premium is 5% per year and the risk-free rate of return is 4% per year. BKB Co pays profit tax at an annual rate of 30% per year.

Required:

(a) Calculate the market value after-tax weighted average cost of capital of BKB Co, explaining clearly any assumptions you make. (12 marks)

(b) Discuss why market value weighted average cost of capital is preferred to book value weighted average cost of capital when making investment decisions. (4 marks)

(c) Comment on the interest rate risk faced by BKB Co and discuss briefly how this risk can be managed. (5 marks)

(d) Discuss the attractions to a company of convertible debt compared to a bank loan of a similar maturity as a source of finance. (4 marks)

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第3题

The payment of a liability will cause the total owners’ equity to increase.（)

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第4题

How is treasury stock shown on the balance sheet？（)

A.as an asset

B.as a decrease in stockholders equity

C.as an increase in stockholders equity

D.treasury stock is not shown on the balance sheet

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第5题

（ii) State the taxation implications of both equity and loan finance from the point of vie

(ii) State the taxation implications of both equity and loan finance from the point of view of a company.

(3 marks)

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第6题

Which of the following is not the purpose of equity capital？A．Providing a permanent source

Which of the following is not the purpose of equity capital？

A．Providing a permanent source of revenue.

B．Bearing risks and absorbing losses.

C．Disclosing reserves.

D．Facilitating further growth.

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第7题

Where are equity dividends paid presented in the financial statements（).

A.As a deduction from retained earnings in the statement of changes in equity

B.As a liability in the statement of financial position

C.As an expense in profit or loss

D.As a loss in 'other comprehensive income

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第8题

The equity amount of a balance sheet is the creditor's claims on the firm.A．RightB．WrongC．

The equity amount of a balance sheet is the creditor's claims on the firm.

A．Right

B．Wrong

C．Doesn't say

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第9题

A corporation can also obtain equity financing by selling securities directly to cur

A corporation can also obtain equity financing by selling securities directly to current stockholders. 'Equity' here means ().

A. reasonable quality

B. ordinary stocks and shares

C. principles of equality

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第10题

4 （a) A company may choose to finance its activities mainly by equity capital, with low bo

4 (a) A company may choose to finance its activities mainly by equity capital, with low borrowings (low gearing) or by

relying on high borrowings with relatively low equity capital (high gearing).

Required:

Explain why a highly geared company is generally more risky from an investor’s point of view than a company

with low gearing. (3 marks)

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The equity beta of Fence Co is 0·9 and the company has issued 10 million ordinary shares.