Question 1

A plan in which payments are made to employees based on the achievement of certain performance criteria is known as a/an:

Accepted Answer

A

Question 2

Before applications by investors can be accepted for unlisted securities,a waiting period is imposed of at least:

Accepted Answer

B

Question 3

A rights issue can be contrasted to a bonus issue in that:

Accepted Answer

Bonus shares are typically issued from a company's reserves and are given to existing shareholders at no additional cost, thus not raising new capital. In contrast, a rights issue is a way for a company to raise additional capital by giving existing shareholders the right to purchase additional shares, usually at a discount.

Question 4

Dill owns five per cent of the outstanding shares in Pickle Ltd,which has just announced a one for five rights issue with a subscription price of $1.90.The current 'cum rights' price for Pickle shares is $2.20.The number of outstanding shares in Pickle Ltd is 5000.Calculate the theoretical ex-rights share price.

Accepted Answer

The answer of Dill owns five per cent of the...

Question 5

Which of the following statements is true?

Accepted Answer

The answer of Which of the following statements is true?
...

Question 6

The reason for the requirement by the Australian Stock Exchange (ASX)for a minimum of 500 shareholders in a new listed company is:

Accepted Answer

The requirement for a minimum of 500 shareholders helps to ensure that there will be an active market in the company's shares. This is because a large number of shareholders create more demand for the shares, leading to higher liquidity and more trading activity.

Answer A, C, and D are not the best choices. While they may all have some impact on the decision to require a minimum of 500 shareholders, they do not address the primary reason for the requirement, which is to create an active market in the company's shares.

Question 7

No-liability companies have been created because of:

Accepted Answer

No-liability companies are primarily associated with the mining sector, where the risk of business failure is high, and they allow investors to not be liable for calls on unpaid shares if they choose not to pay.

Question 8

An offer of securities to investors cannot proceed until a disclosure document has been lodged with:

Accepted Answer

The disclosure document is necessary to provide investors with sufficient information to make an informed decision about whether or not to invest. ASIC is responsible for reviewing and approving the disclosure document, so option C is the correct choice. Options A and B are not applicable as the ASX is only involved in the listing of securities, and APPRA is not a regulatory body responsible for the approval of disclosure documents.

Question 9

Private equity investments typically have:

Accepted Answer

Private equity investments are known for having a higher level of risk than most other investments due to their illiquidity, lack of transparency, and dependence on market conditions. Investors in private equity funds are usually looking for higher returns than they could achieve through public market investments, but they are also taking on more risk in exchange for those potential rewards.

Question 10

Private equity is also known as:

Accepted Answer

Private equity encompasses various types of investments, including venture capital. Venture capital is a subset of private equity focused specifically on investing in startups and early-stage companies with high growth potential.

Question 11

Funds from operations can be written as:

Accepted Answer

Funds from operations (FFO) is a cash flow measure used in the REIT and real estate industries. It is calculated as profit before tax plus depreciation. Option D is the only choice that includes depreciation in the calculation.

Question 12

Brown Ltd has decided to raise capital by issuing 200 new shares.Marketing Ltd has prepared a report to Brown Ltd listing the following potential investors together with the number of shares each is prepared to purchase at the following price:

At what price should Brown issue in order to maximise the amount of capital to be raised?

Accepted Answer

To maximize the amount of capital raised, Brown should issue shares at the highest price possible while still satisfying demand.

At a price of $160, only 100 shares would be purchased for a total of $16,000.

At a price of $170, only 150 shares would be purchased for a total of $25,500.

At a price of $180, all 200 shares would be purchased for a total of $36,000.

Therefore, the best choice is to issue shares at a price of $180.

Option D cannot be chosen because there is no information to suggest that the price should be greater than $180 in order to maximize the capital to be raised.

Question 13

Typically,a company employs the services of an underwriter:

Accepted Answer

An underwriter is typically employed by a company to take up any under-subscription of new shares. This means that if the company issues new shares but not enough investors are interested in buying them, the underwriter will purchase any remaining shares to ensure that the offering is fully subscribed. Employing an underwriter is not typically related to pre-marketing shares, issuing shares at a discount, or offering no-liability shares.

Question 14

The voting rights of a company's shareholders must be specified in:

Accepted Answer

The voting rights of a company's shareholders are typically specified in the company's constitution, which outlines the governance, rights, and obligations of the company and its members.

Question 15

Dill owns five per cent of the outstanding shares in Pickle Ltd,which has just announced a one for five rights issue with a subscription price of $1.90.The current 'cum rights' price for Pickle shares is $2.20.If the number of outstanding shares in Pickle Ltd is 5000,what is the theoretical value of the right to one new share?

Accepted Answer

The theoretical value of the right (TVR) can be calculated using the formula: TVR = (P0 - Pn) / (n + 1), where P0 is the cum rights price, Pn is the subscription price, and n is the number of rights needed to buy a new share. Here, P0 = $2.20, Pn = $1.90, and n = 5. So, TVR = ($2.20 - $1.90) / (5 + 1) = $0.30 / 6 = $0.05. However, this calculation is incorrect based on the initial prompt. The correct calculation should consider the weighted average price of the old and new shares. Correct calculation: [(5 * $2.20) + $1.90] / 6 = $11.90 / 6 = $1.9833. The difference between the cum rights price and the new average price gives the value of the right: $2.20 - $1.9833 = $0.2167, which rounds to approximately $0.22, indicating a mistake in the initial calculation and choices provided. The correct approach to find the theoretical ex-rights price (TERP) is: TERP = [(Old shares * Old price) + (New shares * Subscription price)] / Total shares after the issue. Then, the value of a right = Cum rights price - TERP. Without the correct options matching the recalculated value, the explanation points out the need for reevaluation of the provided choices.

Question 16

Ordinary shares can be best described as:

Accepted Answer

Ordinary shares represent an ownership interest in a company, which typically includes voting rights. Holders of ordinary shares also have a residual interest in the company's net assets, meaning they have a claim on the assets only after claims of creditors and preferred shareholders are satisfied.

Question 17

A owns 1000 shares in XYZ Ltd whose current share price (cum rights)is $2 per share.XYZ Ltd makes a one for four rights issue with a subscription price of $1.40 per share.Calculate the value of R,of the right to one new share.

Accepted Answer

One for four rights issue means that for every four shares held, the shareholder is entitled to purchase one new share. In this case, A owns 1000 shares, so he is entitled to purchase 250 new shares (1000/4=250).
The subscription price for the new shares is $1.40 per share. Therefore, A needs to pay $1.40 x 250 = $350 to purchase the new shares.
The current share price (cum rights) is $2 per share. After the rights issue, the shares will trade ex-rights, which means that the value of the right needs to be deducted from the share price. The value of the right can be calculated as follows:
Value of the right = (Current share price - Subscription price)/(Number of rights required to purchase one new share + 1)
= ($2 - $1.40)/(4+1)
= $0.12
Therefore, the value of the right to one new share is $0.48 (4 x $0.12), which is Option C.

Question 18

A measure of internal equity finance is:

Accepted Answer

Funds from operations represents the cash generated by a company's operations, which can be used to finance the firm's activities and investments. It is a measure of internal equity finance because it is generated from the company's own operations rather than from external sources such as debt financing or equity issuance. Accounting profit, total revenues, and profit before tax do not specifically measure internal equity finance.

Question 19

Which act requires that the rights of preference shareholders be fully stated in the company's constitution?

Accepted Answer

The Corporations Act 2001 requires that the rights of preference shareholders be fully stated in the company's constitution. This act governs the formation, operation, and regulation of companies in Australia.

Question 20

A plan in which employees initially purchase an option to buy shares at some future time at a specified price is known as a/an:

Accepted Answer

An option plan is a type of employee stock ownership plan in which employees are given the option to purchase shares at a specified price in the future. This allows employees to benefit from any increase in the company's stock price while minimizing their financial risk. The other options listed (fully paid share plan, replicator plan, employee share trust) do not involve the purchase of options.

Quiz 9: Sources of Finance: Equity