← Back to exam page

F3 – Financial Strategy

Loading demo links...

Showing 13–15 of 15 questions

Question 13

A listed publishing company owns a subsidiary company whose business activity is training.

It wishes to dispose of the subsidiary company.

The following information is available:

The board of the publishing company believe that the value of the subsidiary company and hence the value of the equity invested in it can be determined by calculating the present value of the subsidiary's free cashflows.

Which of the following is the most appropriate discount rate to use when determining the enterprise value of the company?

Select an option, then click Submit answer.

  • ○

    A WACC that reflects the gearing of the publishing company and the asset beta of a listed company that provides training activities.
  • ○

    A cost of equity that reflects the asset beta of a listed company that provides training activities.

  • ○

    A WACC that reflects the gearing of the subsidiary company and the asset beta of a listed company that provides training activities.
  • ○

    A WACC that the reflects the gearing of the publishing company and the equity beta factor of the publishing company.

Question 14

Company A is a listed company that produces pottery goods which it sells throughout Europe. The pottery is then delivered to a network of self employed artists who are contracted to paint the pottery in their own homes. Finished goods are distributed by network of sales agents.The directors of Company A are now considering acquiring one or more smaller companies by means of vertical integration to improve profit margins.

Advise the Board of Company A which of the following acquisitions is most likely to achieve the stated aim of vertical integration?

Select an option, then click Submit answer.

  • ○

    A company in a similar market to Company A.
  • ○

    A pottery factory in the Middle East.
  • ○

    A company that produces accessories.
  • ○

    A listed international logistics firm.
Question 15

A company's current earnings before interest and taxation are $5 million.

These are expected to remain constant for the forseeable future.

The company has 10 million shares in issue which currently trade at $3.60.

It also has a $10 million long term floating rate loan.

The current interest rate on this loan is 5%.

The company pays tax at 20%.

The company expects interest rates to increase next year to 6% and it's Price/Earnings (P/E) ratio to move to 9.5 times by the end of next year.

What percentage reduction in the share price will occur by the end of next year if the interest rate increase and the P/E movement both occur?

Select an option, then click Submit answer.

  • ○

    Reduction of 7%
  • ○

    Reduction of 5%
  • ○

    Reduction of 1%
  • ○

    Reduction of 0%