Instant Access CIMA CIMAPRA19-F03-1 Exam Premium Dumps - FreeCram

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?

• A. Dividend valuation model.
• B. P/E based valuation using the P/E of a similar company.
• C. Net asset valuation
• D. Discounted cash flow analysis at WACC (based on cash flows after tax but before financing) plus the market value of debt.

Company A has agreed to buy all the share capital of Company B.
The Board of Directors of Company A believes that the post-acquisition value of the expanded business can be computed using the "boot-strapping" concept.
Which of the following most accurately describes "boot-strapping" in this context?

• A. Forecasting the future free cash flows of the combined entities and discounting these at the bidder's Weighted Average Cost of Capital
• B. Adding together the current post-tax earnings of each company and multiplying this by the price/earnings ratio of the bidder
• C. Adding together the current post tax earnings of each company and multiplying this by the price earnings ratio of the acquired entity
• D. Combining the pre-acquisition market capitalisation of each company

A profitable company wishes to dispose of a loss-making division that generated negative free cashflow in the last financial year.
The division requires significant new investment to return it to profitability.
Which of the following valuation approaches is likely to be the most useful to the company when negotiating the sales price?

• A. Asset basis
• B. P/E ratio applied to forecast earnings next year
• C. Dividend growth model
• D. Discounted forecast free cashflow

Which THREE of the following methods of business valuation would give a valuation of the equity of an entity, rather than the value of the whole entity?

• A. Non-current assets, plus current assets, minus current liabilities
• B. Expected dividend in one year's time / (cost of equity - growth rate).
• C. Forecast future cash flows to all Investors, discounted at the weighted average cost of capital.
• D. Forecast future cash flows to equity, discounted at the cost of equity.
• E. Total earnings x appropriate price-earnings ratio.

A company is planning a share repurchase programme with the following details:
* Repurchased shares will be immediately cancelled.
* The shares will be purchased at a premium to the market share price.
The current market share price is greater than the nominal value of the shares.
Which of the following statements about the impact of the share repurchase programme on the company's financial statements is correct?

• A. The premium to the market value would be charged to the Income Statement.
• B. The share capital figure would reduce by the nominal value of the shares purchased.
• C. The total value of the equity in its Statement of Financial Position would remain unchanged.
• D. The premium to the nominal value would be charged to retained earnings.