A company is considering taking out $10.000,000 of floating rate bank borrowings to finance a new project. The current rate available to the company on floating rate barrowings is 8%. The borrowings contain a covenant based on an interested cover of 5 times.
The project is expected to generate the following results:

At what interest rate on the floating rate borrowings is the bank covenant first breached?

Which THREE of the following methods of business valuation would give a valuation of the equity of an entity, rather than the value of the whole entity?

A company's directors plan to increase gearing to come in line with the industry average of 40%. They need to know what the effect will be on the company's WACC.
According to traditional theory of gearing the WACC is most likely to:

The financial assistant of a geared company has prepared the following calculation of the company's equity value:


Useful information;
* Tax rate - 20%
* Cost of equity = 12%
* Weighted average cost of capital (WACC) < 10%
" Debt finance of the company comprises a $6 million 7% undated bond trading at par Valuation workings.
Which of the following errors has been made by the financial assistant?

On 1 January:
* Company X has a value of $50 million
* Company Y has a value of $20 million
* Both companies are wholly equity financed
Company X plans to take over Company Y by means of a share exchange. Following the acquisition the post-tax cashflow of Company X for the foreseeable future is estimated to be $8 million each year. The post-acquisition cost of equity is expected to be 10%.
What is the best estimate of the value of the synergy that would arise from the acquisition?