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18 Assuming the conversion value after seven years is $126-15, what is the current market value of the 8% loan notes of Par Co? $115.20 $109.26 C $94.93 D $69.00 19 Which of the following statements relating to the capital asset pricing model is correct? The equity beta of Par Co considers only business risk The capital asset pricing model considers systematic risk and unsystematic risk C The equity beta of Par Co indicates that the company is more risky than the market as a whole D The debt beta of Par Co is zero 20 Which of the following statements are problems in using the price/earnings ratio method to value a company? (1) It is the reciprocal of the earnings yield (2) It combines stock market information and corporate information (3) It is difficult to select a suitable price/earnings ratio (4) The ratio is more suited to valuing the shares of listed companies A 1 and 2 only B 3 and 4 only C 1, 3 and 4 only D 1, 2, 3 and 4Section B - ALL 15 questions are compulsory and MUST be attempted Please use the grid provided on page two of the Candidate Answer Booklet to record your answers to each multiple choice question. Do not write out the answers to the MCQs on the lined pages of the answer booklet. Each question is worth 2 marks. The following scenario relates to questions 16-20. Par Co currently has the following long-term capital structure: $m $m Equity finance Ordinary shares 30-0 Reserves 38-4 68-4 Non-current liabilities Bank loans 15-0 8% convertible loan notes 40-0 5% redeemable preference shares 15-0 70-0 Total equity and liabilities 138-4 The 8% loan notes are convertible into eight ordinary shares per loan note in seven years' time. If not converted, the loan notes can be redeemed on the same future date at their nominal value of $100. Par Co has a cost of debt of 9% per year. The ordinary shares of Par Co have a nominal value of $1 per share. The current ex dividend share price of the company is $10-90 per share and share prices are expected to grow by 6% per year for the foreseeable future. The equity beta of Par Co is 1-2. 16 The loan notes are secured on non-current assets of Par Co and the bank loan is secured by a floating charge on the current assets of the company. Which of the following shows the sources of finance of Par Co in order of the risk to the investor with the riskiest first? A Redeemable preference shares, ordinary shares, loan notes, bank loan Ordinary shares, loan notes, redeemable preference shares, bank loan Bank loan, ordinary shares, redeemable preference shares, loan notes Ordinary shares, redeemable preference shares, bank loan, loan notes 17 What is the conversion value of the 8% loan notes of Par Co after seven years? $16-39 $111-98 $131-12 $71-7212 The following information has been calculated for A Co: Trade receivables collection period: 52 days Raw material inventory turnover period: 42 days Work in progress inventory turnover period: 30 days Trade payables payment period: 66 days Finished goods inventory turnover period: 45 days What is the length of the working capital cycle? 103 days 131 days 235 days 31 days 13 Which of the following is/are usually seen as benefits of financial intermediation? (1) Interest rate fixing 2) Risk pooling (3) Maturity transformation A 1 only B 1 and 3 only C 2 and 3 only 1, 2 and 3 14 Which of the following statements concerning working capital management are correct? (1) The twin objectives of working capital management are profitability and liquidity 2) A conservative approach to working capital investment will increase profitability (3) Working capital management is a key factor in a company's long-term success A 1 and 2 only 1 and 3 only C 2 and 3 only D 1, 2 and 3 15 Governments have a number of economic targets as part of their monetary policy. Which of the following targets relate predominantly to monetary policy? (1) Increasing tax revenue 2) Controlling the growth in the size of the money supply (3) Reducing public expenditure (4) Keeping interest rates low A 1 only 1 and 3 C 2 and 4 only D 2, 3 and 4