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NEW QUESTION 24
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?
  • A. It is a way of increasing dividend per share.
  • B. It is a way of raising additional finance to promote future growth.
  • C. It is a way of encouraging shareholders to allow cash to be retained in the business.
  • D. It is a way of increasing earnings per share.
Answer: C

NEW QUESTION 25
A company is considering whether to lease or buy an asset.
The following data applies:
* The bank will charge interest at 7.14% per annum
* The asset will cost $1 million
* Tax-allowable depreciation is available on a straight line basis over 5 years
* There is no residual value
* Corporate tax is paid at 30% in the year when the profit is earned
What is the NPV of the buy option?
Give your answer to the nearest $000.
Answer:
Explanation:
$ ?
740

NEW QUESTION 26
Company A has made an offer to acquire Company Z.
Both companies are quoted and their current market share prices are:
* Company A - $4
* Company Z - $5
Shareholders in company Z have been given three alternative offers:
* Cash of $5.50 per share
* Share for share exchange on the basis of 3 for 2
* 10.5% long dated bond for every 20 shares
The bond is has a nominal value of $100 and the expected yield on bonds of similar risk is 10%.
You are advising a Company Z shareholder on the three offers.
She requires a 15% premium if she is to accept the offer.
In providing your advice, which of the following statements is correct?
  • A. The share for share exchange is the only offer which is above the acceptance threshold.
  • B. The value of the consideration given by the cash and bond offers is certain, unlike the share offer.
  • C. The bond offer is only worth $100 which represents a zero premium and should be rejected.
  • D. The bond offer is above the minimum threshold and should be accepted.
Answer: A

NEW QUESTION 27
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