Which of the following is a type of loan finance?

Select one:

a.Share Capital

b.Corporate Profits

c.Corporate Bonds

d.Asset Sales

Why would preference shareholders be likely to seek a higher return from the same company than bondholders?

Select one:

a.Preference shareholders have less chance of receiving their dividend than bondholders have of receiving their interest and also have less chance of receiving any moneyif the company goes into liquidation.

b.Preference shareholders have less knowledge of the company and its operations and prospects than bondholders, increasing the information asymmetry.

c.Preference shareholders have less market power in the stock marketthan bondholders.

d.Preference shareholders have more market power in the stock marketthan bondholders.

If a company has a high risk of defaulting on its bonds, which of the following would investors be likely they to do as a result?

Select one:

a.Offer to buy the bonds for a higher price than they would pay for low risk bonds.

b.Offer to buy the bonds for a lower price than they would pay for low risk bonds.

c.Take legal action to liquidate the company.

d.Log into an internet forum, tell everyone the company is already in default and being wound up, then buy all the bonds and all the shares for virtually nothing.

Company A issues a bond with a face value of 100, a redemption date in 20 years' time and a nominal interest rate of 8%.

Company A manages to sell the bond for a price of 90.

What is the yield to redemption for this bond?

Select one:

a.9.42%

b.8.46%

c.8.37%

d.8.32%

The Myners review found that in the period after an initial public offering (IPO) the price of the shares issued in the IPO did what?

Select one:

a.Almost invariably collapsed

b.Always went up

c.Sometimes became negative

d.Sometimes went up but not always

Which of the following would be a reason to take up a rights issue in a company in which you own shares?

Select one:

a.The company already owes you money as a business partner and needs the funds to pay you and other creditors

b.The company has a good prospect of rapid growth in the future if it survives the short-term liquidity problems which are depressing its share price

c.The company is doomed to insolvency and liquidation anyway, so taking up the rights issue will not affect your personal wealth

d.The rights issue is at a higher price than the market price for the company's shares

Under Myers and Majluf's pecking order theory, what is the order of preference for methods of raising capital, from most to least favoured?

Select one:

a.Borrowing, reinvested profits,new share issues

b.New share issues, borrowing, reinvested profits

c.New share issues, reinvested profits, borrowing

d.Reinvested profits, borrowing, new share issues

Scylace plc's shares are trading on a stock exchange with a share price of 35p.

The nominal value of each share is 5p and the company's market capitalisation is 4.8 billion.

Scylace has announced an annual dividend of 2p per share. It does not intend to pay an interim dividend this year or at any time in the future - it only pays a dividend once per year.

Next year, Scylace's directorsfirmly expect to pay an annual dividend of 2.05p per share and the percentage dividend growth in future years is not expected to change in the foreseeable future.

What is Scylace's Cost of Equity Capital?

Select one:

a.5.71%

b.8.21%

c.40%

d.42.5%

South Sea Bubble plc has 2 billion ordinary shares in issue. The current market price of its ordinary shares is 575p for each share.

Its most recent reported annual post-tax earnings were 225 million, from which it paid a preference dividend of 5 million.

Calculate the price-earnings ratio for South Sea Bubble plc.

Select one:

a.2.56

b.25.56

c.52.27

d.522.73

Company A and Company B are both listed companies.

It is public knowledge that Company A is about to make an all-share offer for Company B, offering Company B's shareholders Company A shares in return for their Company B shares.

The directors of both companies are shareholders in the companies they manage and are interested in increasing shareholder wealth.

Which company's directors have an incentive to manage the presentation of earnings in their accounts - if they can get away with it - to make the company's performancelook better than it really is?

Select one:

a.Company A only

b.Company B only

c.Both

d.Neither