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NEW QUESTION # 49

On 31 October 20X3:

* A company expected to agree a foreign currency transaction in January 20X4 for settlement on 31 March 20X4.

* The company hedged the currency risk using a forward contract at nil cost for settlement on 31 March 20X4.

* The transaction was correctly treated as a cash flow hedge in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

On 31 December 20X3, the financial year end, the fair value of the forward contract was $10,000 (asset).

How should the increase in the fair value of the forward contract be treated within the financial statements for the year ended 31 December 20X3?

  • A. Not recognised in 20X3 as the gain will be offset by a loss on the hedged transaction.
  • B. A $10,000 profit will be recognised within other comprehensive income.
  • C. A $10,000 profit will be recognised within the Income Statement.
  • D. Not recognised in 20X3 as the forward contract is not settled until after the year end.

Answer: B



NEW QUESTION # 50

Company P is a large unlisted food-processing company.

Its current profit before interest and taxation is $4 million, which it expects to be maintainable in the future.

It has a $10 million long-term loan on which it pays interest of 10%.

Corporate tax is paid at the rate of 20%.

The following information on P/E multiples is available:



Which of the following is the best indication of the equity value of Company P?

  • A. $80 million
  • B. $40 million
  • C. $48 million
  • D. $24 million

Answer: D



NEW QUESTION # 51

Company A, a listed company, plans to acquire Company T, which is also listed.

Additional information is:

* Company A has 100 million shares in issue, with market price currently at $8.00 per share.

* Company T has 90 million shares in issue,. with market price currently at $5.00 each share.

* Synergies valued at $60 million are expected to arise from the acquisition.

* The terms of the offer will be 2 shares in A for 3 shares in B.

Assuming the offer is accepted and the synergies are realised, what should the post-acquisition price of each of Company A's shares be?

Give your answer to two decimal places.

$ ? .

Answer:

Explanation:

8.19, 8.18



NEW QUESTION # 52

Providers of debt finance often insist on covenants being entered into when providing debt finance for companies.

Agreement and adherence to the specific covenants is often a condition of the loan provided by the lender.

Which THREE of the following statements are true in respect of covenants?

  • A. Covenants are entered into to impose financial discipline on the company.
  • B. Covenants enable the lender to demand immediate repayment or to renegotiate terms if it is breached.
  • C. Covenants are entered into to give the lender added protection on the loan extended to the company.
  • D. Covenants are entered into to penalise the company.
  • E. Covenants are entered into to eliminate the tax liability of the company.

Answer: A,B,C

Explanation:

Discursive_F0



NEW QUESTION # 53

A UK company enters into a 5 year borrowing with bank P at a floating rate of GBP Libor plus 3%

It simultaneously enters into an interest rate swap with bank Q at 4.5% fixed against GBP Libor plus 1.5%

What is the hedged borrowing rate, taking the borrowing and swap into account?

Give your answer to 1 decimal place.

  • A. 7.5%
  • B. 6.5%

Answer: A



NEW QUESTION # 54

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