Reference no: EM132796798

1. For the bidder to enjoy an increase in EPS following a series of acquisitions, and in effect, play the P/E game, the following must be true:

a. Post-deal P/E ratio must not decline

b. Acquirer must pay continually lower premiums with each deal

c. The bidder must make fewer deals over time

d. None of the above

2. SMP Corporation has 7.5% preferred share outstanding with a par value of R100. Currently, this share has a market value per share of R52 and a book value per share of R38. What is the cost of the preferred share?

a. 7.5%

b. 13.9%

c. 14.4%

d. 19.3%

3. The amount of money per common share that could be realized by breaking up the firm, selling the assets, repaying the debt, and distributing the remainder to shareholders is referred to as:

a. Book value per share

b. Liquidation value per share

c. Market value per share

d. None of these is correct

4. Which of the following is true:

a. FCF = EBITDA - CE - CWC + CTP

b. FCF = EBITDA - CE - CWC - CTP

c. FCF = EBITDA - CE + CWC + CTP

d. None of the above

5. BFS has cost of debt of 5.6%. What is the company's after-tax cost of debt if its tax rate is 32%?

a. 3.0%

b. 3.2%

c. 3.8%

d. 5.2%

6. What is equal to (common shareholders' equity/common shares outstanding)?

a. Book value per share

b. Liquidation value per share

c. Market value per share

d. None of these is correct

7. Which of the following are desirable characteristics of targets?

a. Rapidly growing cash flows and earnings

b. Low P/E ratios

c. Market value less than book value

d. All the above

8. Question 8 ABC Inc. is expected to pay an annual dividend of R0.80 a share next year. The market price of the share is R22.40 and the growth rate is 5%. What is the firm's cost of equity?

a. 7.6%

b. 7.9%

c. 8.2%

d. 8.6%

9. Which of the following factors will influence the initial potential dilution of earnings per share?

I. Differential in P/E ratios

II. Relative size of the two firms as measured by earnings

III. Taxability of target earnings

a. I and II

b. I and III

c. II only

d. I, II and III

10. The discount rate used to discount future cash flows should:

a. Be equal to yield on longterm U.S. Treasuries

b. Be 2% greater than yield on long-term U.S. Treasuries

c. Incorporate a risk premium equal to perceived risks and volatility of future cash flow stream

d. Usually will be 1% greater than yield on high-yield bonds