F3 Exam Results

Page: 25 / 32

Question 100

ART manufactures traditional scooters. It has an equity beta of 1.4 and is financed entirely by equity. It plans to continue to be all-equity financed in future.

It is considering producing a range of electric scooters

GGG is a comparable quoted electric scooter manufacturer GGG has an equity beta of 2 4 reflecting its high level of gearing (the ratio of debt to equity is VI using market values).

The risk-free rate is 5%, and the market premium is 6%. The rate of corporation tax is 20%

What is the recommended discount rate that ART should use to assess the project to manufacture electric scooters?

Options:

Question 101

Which of the following statements best describes a residual dividend policy?

Options:

Dividends are paid only after the on-going operational needs of the business have been met.

Dividends are paid only if no further positive NPV projects are available.

All surplus earnings are invested back into the business.

Dividends are paid at a constant rate.

Question 102

A company has an opportunity to invest in a positive net present value project, but the project would require debt finance that would push the company's gearing ever a limit imposed by a debt covenant on an existing loan.

Which THREE of the following actions could be taken by the company?

Options:

The company could approach its existing Lenders to negotiate a relaxation of :he conditions imposed by the covenant.

The project could be foregone if it cannot be funded without breaching the covenant

The project could proceed if the cash inflows from the project will enable some of the debt to be repaid before the end of the financial year and so the breach of covenant may never be detected

The company could seek alternative sources of finding, such as a reduction in the annual dividend payment, to finance the project.

The directors could meet with key shareholder to discuss whether they wish the project proceed despite the breach of the covenant

The directors could proceed will the project because their primary duly is maximise shared older wealth, even if that conflicts with lenders' interest.

Question 103

Integrated reporting is designed to make visible the capitals on which the organisation depends, and how the organisation uses those capitals to create value in the short, medium and long term

Which THREE of the following capitals are specifically identified in the Integrated Reporting Framework?