The directors of a unlisted manufacturing company have prepared a valuation of their company using the price-earning method.
Their calculation is:
Value if the company's equity = $6 million x 10 =$60 million where.
$6 million is the company's reported profit before interested and tax in the most recent accounting period and
10 is the average price-earnings ratio for all listed companies
Which THREE of the following are weakness of this valuation?
A company has:
* $6 million market value of equity
* $4 million market value of debt
* WACC of 11.04%
* Corporate income tax rate of 20%
According to Modigliani and Miller's theoryof capital structure with tax,what is the ungeared cost of equity?
A listed company is considering either a one-off special divided or a share repurchase scheme to reduce its surplus cash level.
Identify TWO advantages that a one-off special payment has over a share repurchase scheme.
Which THREE of the following would be most important if a hospital wishes to review the effectiveness of its services?
A company is planning to issue a 5 year $100 million bond at a fixed rate of 6%.
It is also considering whether or not to enter into a 10 year $100 million swap to receive 5% fixed and pay Libor+ 1% once a year.
The company predicts that Liborwill be4% over the life of the 5 years.
What is the impact of the swap on the company's annual interest costassuming that theLiborpredictioniscorrect?
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