The Board of Directors of a listed company have decided that it needs to increase its equity capital to ensure it is in a more stable financial position.The shareholder profile is a mix of institutional and individual small shareholders.The board is considering either:· A scrip dividend· A zero dividendWhich THREE of the following would be considered disadvantages of a scrip dividend compared to a zero dividend?
Answer(s): A,C,D
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?
Answer(s): A
A company financed by equity and debt can be valued by discounting:
A company is deciding whether to offer a scrip dividend or a cash dividend to its shareholders.Although the company has excellent long-term growth prospects, it is experiencing short- term profit and cash flow problems.Which of the following statements is most likely to be a reason for choosing the scrip dividend?
Answer(s): C
Listed company R is in the process of making a cash offer for the equity of unlisted company S.Company R has a market capitalisation of $200 million and a price/earnings ratio of 10.Company S has a market capitalisation of $50 million and earnings of $7 million.Company R intends to offer $60 million and expects to be able to realise synergistic benefits of $20 million by combining the two businesses. This estimate excludes the estimated $8 million cost of integrating the two businesses.Which of the following figures need to be used when calculating the value of the combined entity in $ millions?
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