CIMAPRA19-F03-1 F3 Financial Strategy Exam Practice Test

A Venture Capital Fund currently holds a significant shareholding in a large private company as a result of funding a recent management buyout. It plans to exit this investment in 5 years time at a significant profit.

Which THREEof the following exit mechanisms are most likely to be preferred by the Venture Capital Fund?

A venture capitalist invests in a company by means of buying:

* 9million shares for$2 a share and

* 8% bonds with anominalvalue of $2 million, repayableat par in 3 years' time.

The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment.

The company has 10 million shares in issue.

What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?

Give your answer to the nearest$million.

$ million.

A company plans to raise S15 million to finance an expansion project using a rights issue Relevant data

* Shares will be offered at a 20% discount to the present market price of S12 50 per share

* There are currently 3 million shares in issue

* The project is forecast to yield a positive NPV of $9 million

What is the yield-adjusted Theoretical Ex-Rights Price following the announcement of the rights issue?

Company A is a large well-established listed entertainment company and Company B is a small unlisted company specializing in providing online media streaming.

Company A has a gearing ratio of 60% (using book values) and interest cover of 2.

Company A is considering making an offer for Company B, either a cash offer financial by raising additional debt finance or a share-for-share exchange.

Which of the following is most likely to occur if Company A offers a share-for exchange rather than offering cash finance by raising debt?

When valuing an unlisted company, aP/Eratio for a similar listed company may be used but adjustments to theP/Eratio may be necessary.

Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use?

Acompanyhas 8% convertible bonds in issue. The bonds are convertible in 3 years time at a ratio of 20 ordinary shares per $100 nominal value bond.

Each share:

* has a current market value of $5.60

* is expected to grow at 5% each year

What is the expected conversion valueof each$100nominal value bondin 3 years' time?

An unlisted company.

* Is owned by the original founders and members of their families

* Pays annual dividends each year depending on the cash requirements of the dominant shareholders.

* Has earnings that are highly sensitive to underlying economic conditions.

* Is a small business in a large Industry where there are listed companies with comparable capital structures

Which of the following methods is likely to give the most accurate equity value for this unlisted company?