$1$ Which of the following explains why the directors of a quoted company would be

keen to discourage a takeover bid by a rival company?

A Consumers will have fewer choices if the acquisition proceeds.

B The bid implies that the target$$s directors are underperforming.

C Bidders always attempt to underpay the shareholders.

D The target$$s share price is likely to be depressed by the bid.

$[2]$

$2$ How should the potential conflict between the board$$s duty to maximise shareholder

wealth and its ethical duty to other stakeholders be addressed?

A Ethical duties always take priority over the maximisation of shareholder

wealth.

B Shareholder wealth should always be maximised regardless of other impacts.

C The board is required to seek the shareholders$$ guidance with respect to

ethical duties.

D The pursuit of shareholder wealth may be constrained by ethical duties.

$[2]$

$3$ Who bears the responsibility for financial decisions made by a quoted company?

A The board of directors.

B The chief financial officer.

C The external auditor.

D The shareholders.

$[2]$

$4$ A company has offered its shareholders the option to take a scrip dividend as an

alternative to a cash dividend. What are the implications of accepting this option?

A A scrip dividend is identical to a share repurchase.

B Accepting the scrip dividend will reduce the shareholders$$ wealth.

C Shareholders can avoid tax by accepting the scrip dividend.

D The share price will be affected by the numbers who accept the scrip.

$[2]$

$5$ Which of the following explains the difference between real and nominal interest

rates?

A Nominal rates are equal to the coupon rate on gilts.

B Nominal rates are equal to the returns from index linked gilts.

C Real rates are adjusted for the effects of inflation.

D Real rates are higher than nominal rates.

$[2]$

CB$1$ S$20243$

$6$ A company$$s directors are considering an investment in a major project. The

following criteria for the investment are under consideration:

$$ The project will be funded using debt that will have a $10\%$ post$-$tax rate of

interest.

$$ The project$$s internal rate of return is $9\%.$ The company has a standard hurdle rate

of $12\%.$

$$ The project$$s estimated beta coefficient indicates that the required rate of return is

$14\%.$

$$ The company$$s historical weighted average cost of capital is $16\%.$

What is the lowest rate of return that the company can accept in order to maintain

shareholders$$ wealth?

A $10\%$

B $12\%$

C $14\%$

D $16\%$

$[2]$

$7$ Which of the following is a practical advantage of using simulation in determining the

risk associated with a major project?

A Simulation is a quick and easy technique to apply.

B Simulation is an objective approach to project evaluation.

C Simulation provides the correct answer concerning investment.

D Simulation takes account of the interactions between risk factors.

$[2]$

$8$ Company R$$s directors are planning to extend their factory. There is a risk that the

site on which the extension will be built is structurally unsound. If it is$,$ then the cost

of building the extension will increase.

Company R$$s board is considering addressing the risk by asking a building company

to agree to build the extension for a fixed price. Which of the following is the most

likely outcome of this approach?

A The building company will accept the risk of problems with the site.

B The building company will charge more to compensate for the risk.

C The building company will insist on building the extension elsewhere.

D The building company will seek damages from Company R if the site is

unsound.

$[2]$

CB$1$ S$20244$

$9$ A company is evaluating an investment and has forecast future cash flows. The board

wishes to evaluate the project$$s cash flows on the basis of certainty equivalents.

Which of the following is true of the determination of certainty equivalents?

A Certainty equivalents will be higher than forecast net cash inflows.

B Certainty equivalents will be lower than forecast net cash inflows.

C Certainty equivalents will be more objective than forecast cash flows.

D Certainty equivalents will not require to be discounted.

$[2]$

$10$ A quoted company has a highly skilled workforce. The value of that workforce is not

reflected anywhere in the company$$s financial statements. Which of the following

explains why that should be$?$

A Any amount attributed to the workforce would have to be written off over

time.

B The value of the workforce will never be material.

C The affairs of the business are kept separate from those of its employees.

D The value of the workforce cannot be measured objectively in money terms.