Tag: Financial Accounting

Which of the following is an advantage to shareholders of a company that is obtaining a quotation on the London Stock Exchange?

Select ONE answer:

1. Disclosure requirements are reduced
2. Larger dividends can be paid
3. Shares become more readily marketable
4. The company becomes entitled to put ‘plc’ (that is, public limited company) after its name

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == > Shares become more readily marketable when they are quoted. Not all public limited companies are quoted companies, and all quoted companies face increased disclosure requirements, not reduced ones, compared to an unquoted plc let alone a Ltd company. The size of dividend does not depend on whether a company is quoted.
4. Not correct

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Alex plc wants to be listed on the London Stock Exchange.

Ken, their adviser has stated that the following are methods by which a company can obtain a new London Stock Exchange quotation for its shares:

Method 1 Offer for sale
Method 2 Placing
Method 3 Rights issue
Method 4 Offer for subscription

Which of these methods are actually available to Alex plc?

Select ONE answer:

1. Methods 1, 2 and 3 only
2. Methods 2, 3 and 4 only
3. Methods 1, 2 and 4 only
4. Methods 1, 3 and 4 only

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == > A rights issue is the only one of these methods which cannot be used to obtain a new stock exchange listing.
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

In which of the following projects would a venture capital organisation be least likely to invest?

Select ONE answer:

1. A business start-up
2. A management buyout
3. Renovation of a production facility
4. Replacement of an existing production line with a process using a new technology

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == > Venture capital is generally most appropriate for new investments with above average risk. Renovation of an existing facility is a part of the ongoing activity of the business and is unlikely to have much impact on the overall level of returns. It is therefore unlikely to be appropriate for a venture capital investment.
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Alex, a financial consultant has made the following statements about venture capital.

•Statement 1 – Venture capitalists may realise their investment by selling their shares following flotation on the stock exchange

•Statement 2 – Venture capitalists never sit on the board of a company

•Statement 3 – Venture capitalists normally expect a company’s existing owners to bear a substantial part of the risk

Which of the statements are true?

Select ONE answer:

1. Statements 1 and 2 only
2. Statements 2 and 3 only
3. Statements 1 and 3 only
4. Statements 1, 2 and 3

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == > Venture capitalists often will want a place on the board to secure their investment, so (statement 2) is false. They are very likely however to realise their investment by selling their shares following flotation on the stock exchange (statement 1), and they would normally expect a company’s existing owners to bear a substantial part of the risk (statement 3).
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

The directors at Alex plc are considering raising long-term finance by issuing shares in the company.

They have been informed that the way to do this is ‘by accessing the market’ but they are not sure what this means.

A market where new securities are bought and sold for the first time is known as?

Select ONE answer:

1. A futures market
2. A secondary capital market
3. A primary capital market
4. A money market

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == > The capital markets consist of primary markets and secondary markets. New securities are issued on primary capital markets whilst secondary capital markets allow investors to buy existing securities or sell securities that they hold. Money markets provide short term debt financing and investment. Futures markets provide standardised futures contracts to buy or sell a particular commodity or financial instrument at a pre-determined price in the future.
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.