Question 1

PTT has a number of subsidiary companies around the world, including FTT based in Europe and CTT based in Indonesia

CTT purchases all of us raw materials from FTT CTT processes these materials and the resulting products are exported to several different countries CTT pays FTT in the Indonesian currency.

Indonesia's inflation is higher than that of FTTs home country

Which of the following statements are correct?

Select ALL that apply

AFTT will be exposed to transaction risks as the Indonesian currency will appreciate over time because of the expected inflation rates

BFTT will be exposed to transaction risk The Indonesian currency that it receives Is likely to decline over time because of anticipated inflation

CFTT could ask for ail payments to K to be made in its home currency, which would reduce exposure to currency risk

DCTT will be exposed to translation risk because FTT will almost certainly have to reflect the changing prices in its selling price and it will be difficult for CTT to make a profit

EFTT could investigate whether it could import anything from Indonesia in order to create a natural hedge.

Answer : A, B, C

Question 2

Three companies are quoted on the New York Stock Exchange. The following data applies:

Which of the following statements is TRUE?

ACompany A has the greatest business risk

BCompanies A and B have the same capital structure

CCompanies A and C have the same business risk

DCompanies A and B have the same business risk

Answer : D

Question 3

A company based in Country A with the A$ as its functional currency requires A$500 million 20-year debt finance to finance a long-term investment The company has a high credit rating, but has not previously issued corporate bonds which are listed on the stock exchange Which THREE of the following are advantages of issuing 20 year bonds compared with simply borrowing for a 20 year period?

ALarger capital market

BGreater availability of debt of 20-year duration

CLower arrangement costs

DLess administrative effort to arrange the new finance

ELower interest rate

Answer : A, B, E

Question 4

ZZZ is a listed company based in Brinland. a European country. It is the largest owner and operator of residential care homes for elderly people in Brinland

Most of the residential care homes in Brinland are run by small private operators, and the standards of cafe are extremely variable However. 22Z has developed a good reputation because its client service is considered to be extremely good even though its prices are higher than those of most of its competitors.

ZZZ has expanded rapidly in the last few years, partly by acquisition and partly by organic growth consequently, the company's share price now stands at a record high, and the dividend declared at the end of the most recent accounting period was 10% higher than the previous year's dividend.

The Brinland government has recently set up a regulatory body to monitor the residential care homes industry. The regulatory body is considering introducing a variety of regulations to improve the customer experience in the industry. Following a period of consultation and investigation, the regulatory body is expected to announce a range of new regulations in the near future.

The directors of ZZZ are concerned that the new regulations may adversely affect their company

Which THREE of the following new regulations are likely to have the greatest negative impact on ZZTs performance?

AImposition of a minimum staff to client ratio.

BPrice controls, setting a maximum price that providers can charge

CMonopoly controls, forcing large operators to dispose of some care homes

DImposition of a one-off 'windfall' tax to fund training courses for carers across the industry

EFines for companies that miss specified service level targets

Answer : A, C, E

Question 5

Company YZZ has made a bid for the entire share capital of Company ZYY

Company YZZ is offering the shareholders in Company ZYY the option of either a share exchange or a cash alternative

Which THREE of the following would be considered disadvantages of accepting the cash consideration for the shareholders of Company ZYY?

AInterest rates on deposit accounts are currently at an historic low and are expected to remain low

BTaxation is payable on realised capital gains.

CCompany YZZ Is not expected to change *s dividend policy post-acquisition

DCash consideration is certain whereas Company YZZ's future share price performance is uncertain

EThere will be no opportunity to participate in the future economic success of Company YZZ